On the Timing and Pricing of Dividends: Reply
American Economic Review
vol. 106,
no. 10, October 2016
(pp. 3224-37)
Abstract
Schulz (2016) replicates the findings of van Binsbergen, Brandt, and Koijen (2012)--henceforth, BBK--and agrees that the average pretax returns on short-term dividend strips are higher than those of the index, but argues that the after-tax returns are not. He thus provides a possible economic interpretation of the results in BBK: taxes. Schulz (2016) estimates the differential tax rates of dividends versus capital gains from ex-dividend day returns. We show that these estimated tax rates are suspect and imprecisely measured, peaking at over 100 percent in some periods. The results in BBK are robust to using tax rates from the literature (Sialm 2009). The arguments in Schulz (2016) thus crucially depend on implausibly large tax estimates. We further discuss two other financial market imperfections discussed in the literature and show that they are also unlikely to explain the results in BBK.Citation
van Binsbergen, Jules H., and Ralph S. J. Koijen. 2016. "On the Timing and Pricing of Dividends: Reply." American Economic Review, 106 (10): 3224-37. DOI: 10.1257/aer.20160698Additional Materials
JEL Classification
- G11 Portfolio Choice; Investment Decisions
- G12 Asset Pricing; Trading volume; Bond Interest Rates
- G35 Payout Policy