Changing Risk, Changing Risk Premiums, and Dividend Yield Effects

Nai-Fu Chen, Bruce Grundy and Robert Stambaugh

Rodney L. White Center for Financial Research Working Papers from Wharton School Rodney L. White Center for Financial Research

Abstract: We investigate the cross-sectional relation between dividend yield and expected return and attempt to include various effects of changing risk measure and changing risk premiums. A stock’s risk is measured by its sensitivities to two factors, a market factor and a changing-risk-premium factor. After analyzing dividend-related changes in risk measures, we investigate the presence of dividend effects in expected returns using four methods, each imposing a different structure on the temporal behavior of risk measures and risk premiums. For each method, we find no reliable cross-sectional relation between dividend yield and risk-adjusted expected return.

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Journal Article: Changing Risk, Changing Risk Premiums, and Dividend Yield Effects (1990)
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