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On the Timing and Pricing of Dividends

  • Jules van Binsbergen
  • Michael Brandt
  • Ralph Koijen

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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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 102 (2012)
Issue (Month): 4 (June)
Pages: 1596-1618

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Handle: RePEc:aea:aecrev:v:102:y:2012:i:4:p:1596-1618
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  1. Lars Peter Hansen & Jaroslav BoroviÄka & Mark Hendricks & Jose A. Scheinkman, 2010. "Risk Price Dynamics," Working Papers 2010-004, Becker Friedman Institute for Research In Economics.
  2. Martin Lettau & Stijn Van Nieuwerburgh, 2006. "Reconciling the Return Predictability Evidence," NBER Working Papers 12109, National Bureau of Economic Research, Inc.
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  13. Long Chen & Zhi Da & Richard Priestley, 2012. "Dividend Smoothing and Predictability," Management Science, INFORMS, vol. 58(10), pages 1834-1853, October.
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  15. Lustig, Hanno & van Nieuwerburgh, Stijn & Verdelhan, Adrien, 2012. "The Wealth-Consumption Ratio," CEPR Discussion Papers 9022, C.E.P.R. Discussion Papers.
  16. Mariano M. Croce & Marin Lettau & Sydney Ludvigson, 2006. "Investor Information, Long-Run Risk, and the Duration fo Risky Assets," 2006 Meeting Papers 628, Society for Economic Dynamics.
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