On the Importance of Measuring Payout Yield: Implications for Empirical Asset Pricing

37 Pages Posted: 27 Dec 2003

See all articles by Jacob Boudoukh

Jacob Boudoukh

Interdisciplinary Center (IDC) Herzliyah; AQR Capital Management, LLC

Roni Michaely

The University of Hong Kong; ECGI

Matthew P. Richardson

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); AQR Capital Management, LLC

Michael R. Roberts

The Wharton School - University of Pennsylvania; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: December 16, 2003

Abstract

There is strong evidence in the literature that dividends and repurchases have been substitutes for each other throughout the 80's and 90's. Asset pricing models that try to relate cash flow distributions to asset prices need to take this into account. We find that while the dividend price ratio process has changed remarkably during the period, the total payout ratio (dividends plus repurchases normalized by price) has changed very little. More importantly, this difference has implications for asset pricing models. The widely documented decline in the predictive power of dividends for excess stock returns in recent periods is vastly overstated. Statistically and economically significant predictability is found at both short and long horizons when total payouts are used instead of dividends. In addition, we provide evidence that payouts have information in the cross-section for expected stock returns, which exceeds that of dividends.

Keywords: Stock Returns, Predictability, Dividend Yield, Share Repurchases, Measurement Error

JEL Classification: G12, G35, C22, C33

Suggested Citation

Boudoukh, Jacob and Michaely, Roni and Richardson, Matthew P. and Roberts, Michael R., On the Importance of Measuring Payout Yield: Implications for Empirical Asset Pricing (December 16, 2003). Available at SSRN: https://ssrn.com/abstract=480171

Jacob Boudoukh

Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 46150
Israel

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

Roni Michaely

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
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Belgium

Matthew P. Richardson

New York University (NYU) - Department of Finance ( email )

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New York, NY 10012-1126
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212-998-0349 (Phone)
212-995-4233 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

Michael R. Roberts (Contact Author)

The Wharton School - University of Pennsylvania; National Bureau of Economic Research (NBER) ( email )

3620 Locust Walk, #2320
Philadelphia, PA 19104-6365
United States
(215) 573-9780 (Phone)

HOME PAGE: http://finance.wharton.upenn.edu/~mrrobert/

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