Payout-Based Asset Pricing

Fisher College of Business Working Paper No. 2023-03-22

Charles A. Dice Working Paper No. 2022-22

48 Pages Posted: 27 Sep 2023

See all articles by Andrei S. Gonçalves

Andrei S. Gonçalves

Ohio State University (OSU) - Fisher College of Business

Andreas Stathopoulos

University of North Carolina (UNC) at Chapel Hill

Date Written: September 22, 2023

Abstract

Firms' payout decisions respond to expected returns: everything else equal, firms invest less and pay out more when their cost of capital increases. Given investors' demand for firm payout, market clearing implies that the dynamics of productivity and payout demand fully determine equilibrium asset prices and returns. We use this logic to propose a payout-based asset pricing framework and we illustrate the analogy between our approach and consumption-based asset pricing in a simple two-period model. Then, we introduce a quantitative payout-based asset pricing model and calibrate the productivity and payout demand processes to match aggregate U.S. corporate output and payout empirical moments. We find that model-implied payout yields and firm returns go a long way in reproducing key attributes of their empirical counterparts.

Keywords: Payout-based Asset Pricing, Consumption-based Asset Pricing, Investment-based Asset Pricing, Market Returns, Aggregate Return Predictability

JEL Classification: E10, E13, G10, G11, G12, G35

Suggested Citation

S. Gonçalves, Andrei and Stathopoulos, Andreas, Payout-Based Asset Pricing (September 22, 2023). Fisher College of Business Working Paper No. 2023-03-22, Charles A. Dice Working Paper No. 2022-22, Available at SSRN: https://ssrn.com/abstract=4584473 or http://dx.doi.org/10.2139/ssrn.4584473

Andrei S. Gonçalves (Contact Author)

Ohio State University (OSU) - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Andreas Stathopoulos

University of North Carolina (UNC) at Chapel Hill ( email )

102 Ridge Road
Chapel Hill, NC NC 27514
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
204
Abstract Views
701
Rank
272,140
PlumX Metrics