On the Timing and Pricing of Dividends / Jules H. van Binsbergen, Michael W. Brandt, Ralph S.J. Koijen.

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van Binsbergen, Jules H

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w16455.Publication details: Cambridge, Mass. National Bureau of Economic Research 2010.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: 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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Previous	nber w16452 Financial Literacy, Schooling, and Wealth Accumulation /	nber w16453 Policy Options for State Pension Systems and Their Impact on Plan Liabilities /	nber w16454 Decoding Inside Information /	nber w16455 On the Timing and Pricing of Dividends /	nber w16456 Portfolio Allocation for Public Pension Funds /	nber w16457 Estimation and Evaluation of Conditional Asset Pricing Models /	nber w16458 How Does the U.S. Government Finance Fiscal Shocks? /	Next

October 2010.

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.