American Economic Review: Vol. 102 No. 4 (June 2012)


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On the Timing and Pricing of Dividends

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van Binsbergen, Jules, Michael Brandt, and Ralph Koijen. 2012. "On the Timing and Pricing of Dividends." American Economic Review, 102(4): 1596-1618.

DOI: 10.1257/aer.102.4.1596


We present evidence on the term structure of the equity premium. We recover prices of dividend strips, which are short-term assets that pay dividends on the stock index every period up to period T and nothing thereafter. It is short-term relative to the index because the index pays dividends in perpetuity. We find that expected returns, Sharpe ratios, and volatilities on short-term assets are higher than on the index, while their CAPM betas are below one. Short-term assets are more volatile than their realizations, leading to excess volatility and return predictability. Our findings are inconsistent with many leading theories.

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van Binsbergen, Jules (Northwestern U and Stanford U)
Brandt, Michael (Duke U)
Koijen, Ralph (U Chicago and Tilburg U)

JEL Classifications

G12: Asset Pricing; Trading volume; Bond Interest Rates
G35: Payout Policy

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