Asset pricing with dividend surprises

Pancheng Guo, Shi Li and Yan Wang

Finance Research Letters, 2023, vol. 58, issue PB

Abstract: In this paper, we derive an intertemporal dividend-surprise-augmented asset-pricing model and show that the expected risk premium compensates for stock returns’ exposure to (i) the market-wide dividend-surprise hedge portfolio based on dividend yield surprise and volatilities, in addition to (ii) the excess market return without dividend yield (as in the conventional CAPM) and (iii) the market-wide dividend yield factor without uncertainty. Our model implies that the uncertainty on dividend-surprise yield is attributable to systematic risk and should be priced at the cross-section, thereby theoretically supporting the existing empirical studies on the relation between dividend surprise and cross-sectional stock returns.

Keywords: Asset pricing; Dividend surprise; Portfolio choice; Investment decision (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:58:y:2023:i:pb:s1544612323007250

DOI: 10.1016/j.frl.2023.104353

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