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On the Timing and Pricing of Dividends

  • Jules Vanbinsbergen

    (Northwestern University)

  • Michael W. Brandt

    (Duke University Fuqua School of Business)

  • Ralph Koijen

    ()

    (London Business School)

We recover prices of dividend strips on the aggregate stock market using data from derivatives markets. The price of a k-year dividend strip is the present value of the dividend paid in k years. The value of the stock market is the sum of all dividend strip prices across maturities. We study the properties of strips and find that expected returns, Sharpe ratios, and volatilities on short-term strips are higher than on the aggregate stock market, while their CAPM betas are well below one. Short-term strip prices are more volatile than their realizations, leading to excess volatility and return predictability.

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Paper provided by Becker Friedman Institute for Research In Economics in its series Working Papers with number 2010-010.

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Date of creation: 2010
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Handle: RePEc:bfi:wpaper:2010-010
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