Risk, Return and Dividends

Andrew Ang and Jun Liu

No 12843, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We characterize the joint dynamics of dividends, expected returns, stochastic volatility, and prices. In particular, with a given dividend process, one of the processes of the expected return, the stock volatility, or the price-dividend ratio fully determines the other two. For example, together with dividends, the stock volatility process fully determines the dynamics of the expected return and the price-dividend ratio. By parameterizing one or more of expected returns, volatility, or prices, common empirical specifications place strong, and sometimes counter-factual, restrictions on the dynamics of the other variables. Our relations are useful for understanding the risk-return trade-off, as well as characterizing the predictability of stock returns.

JEL-codes: G12 (search for similar items in EconPapers)
Date: 2007-01
New Economics Papers: this item is included in nep-fmk and nep-rmg
Note: AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

Published as Ang, Andrew & Liu, Jun, 2007. "Risk, return, and dividends," Journal of Financial Economics, Elsevier, vol. 85(1), pages 1-38, July.

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Journal Article: Risk, return, and dividends (2007)
Working Paper: Risk, Return and Dividends (2005)
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