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Risk, Return and Dividends

48 Pages Posted: 20 Jan 2007 Last revised: 6 Aug 2010

Andrew Ang

BlackRock, Inc

Jun Liu

University of California, San Diego (UCSD) - Rady School of Management

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Date Written: January 2007


We characterize the joint dynamics of dividends, expected returns, stochastic volatility, and prices. In particular, with a given dividend process, one of the processes of the expected return, the stock volatility, or the price-dividend ratio fully determines the other two. For example, together with dividends, the stock volatility process fully determines the dynamics of the expected return and the price-dividend ratio. By parameterizing one or more of expected returns, volatility, or prices, common empirical specifications place strong, and sometimes counter-factual, restrictions on the dynamics of the other variables. Our relations are useful for understanding the risk-return trade-off, as well as characterizing the predictability of stock returns.

Suggested Citation

Ang, Andrew and Liu, Jun, Risk, Return and Dividends (January 2007). NBER Working Paper No. w12843. Available at SSRN:

Andrew Ang (Contact Author)

BlackRock, Inc ( email )

55 East 52nd Street
New York City, NY 10055
United States

Jun Liu

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States
858.534.2022 (Phone)
5858.534.0745 (Fax)

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