Reaching for dividends

Hao Jiang and Zheng Sun

Journal of Monetary Economics, 2020, vol. 115, issue C, 321-338

Abstract: Interest rates dived into uncharted territories for an extended period after the financial crisis. What is the impact on investor behavior and asset prices? We find that when interest rates fall, flows into income-oriented equity funds increase, with higher dividend-yielding funds attracting more inflows after controlling for fund returns. Responding to their incentives, income fund managers tend to aggressively over-weight high dividend stocks in a low-rate environment. This behavior of “reaching for dividends” generates market impact: high dividend stocks tend to have higher prices when interest rates fall, and lower excess returns when interest rates subsequently normalize.

Keywords: Low interest rates; Monetary policy; Dividends; Income funds; Flows (search for similar items in EconPapers)
JEL-codes: E40 E50 G10 G20 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:115:y:2020:i:c:p:321-338

DOI: 10.1016/j.jmoneco.2019.08.003

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