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  3. American Economic Review
  4. June 2012
  5. On the Timing and Pricing of Dividends

On the Timing and Pricing of Dividends

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Abstract

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.

Citation

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

Additional Materials

JEL Classification

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