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On the Timing and Pricing of Dividends: Reply

Author

Listed:
  • Jules H. van Binsbergen
  • Ralph S. J. Koijen

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.

Suggested Citation

  • Jules H. van Binsbergen & Ralph S. J. Koijen, 2016. "On the Timing and Pricing of Dividends: Reply," American Economic Review, American Economic Association, vol. 106(10), pages 3224-3237, October.
    • Handle: RePEc:aea:aecrev:v:106:y:2016:i:10:p:3224-37
    Note: DOI: 10.1257/aer.20160698
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    References listed on IDEAS

    as
    1. Jules van Binsbergen & Michael Brandt & Ralph Koijen, 2012. "On the Timing and Pricing of Dividends," American Economic Review, American Economic Association, vol. 102(4), pages 1596-1618, June.
    2. Harris, Lawrence E. & Hartzmark, Samuel M. & Solomon, David H., 2015. "Juicing the dividend yield: Mutual funds and the demand for dividends," Journal of Financial Economics, Elsevier, vol. 116(3), pages 433-451.
    3. Florian Schulz, 2016. "On the Timing and Pricing of Dividends: Comment," American Economic Review, American Economic Association, vol. 106(10), pages 3185-3223, October.
    4. Francis A. Longstaff & Sanjay Mithal & Eric Neis, 2005. "Corporate Yield Spreads: Default Risk or Liquidity? New Evidence from the Credit Default Swap Market," Journal of Finance, American Finance Association, vol. 60(5), pages 2213-2253, October.
    5. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    6. John Y. Campbell & John Cochrane, 1999. "Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 205-251, April.
    7. He, Zhiguo & Kelly, Bryan & Manela, Asaf, 2017. "Intermediary asset pricing: New evidence from many asset classes," Journal of Financial Economics, Elsevier, vol. 126(1), pages 1-35.
    8. Benjamin Golez, 2014. "Expected Returns and Dividend Growth Rates Implied by Derivative Markets," The Review of Financial Studies, Society for Financial Studies, vol. 27(3), pages 790-822.
    9. John R. Graham, 2003. "Taxes and Corporate Finance: A Review," The Review of Financial Studies, Society for Financial Studies, vol. 16(4), pages 1075-1129.
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    Cited by:

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    8. Hasler, Michael & Khapko, Mariana & Marfè, Roberto, 2019. "Should investors learn about the timing of equity risk?," Journal of Financial Economics, Elsevier, vol. 132(3), pages 182-204.

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    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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    1. On the Timing and Pricing of Dividends: Comment (AER 2016) in ReplicationWiki

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