Payout-Based Asset Pricing

Andrei S. Goncalves and Andreas Stathopoulos
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Andrei S. Goncalves: Ohio State U
Andreas Stathopoulos: U of North Carolina at Chapel Hill

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: Firms' payout decisions respond to expected returns: everything else equal, firms invest less and pay out more when their cost of capital increases. Given investors' demand for firm payout, market clearing implies that the dynamics of productivity and payout demand fully determine equilibrium asset prices and returns. We use this logic to propose a payout-based asset pricing framework and we illustrate the analogy between our approach and consumption-based asset pricing in a simple two-period model. Then, we introduce a quantitative payout-based asset pricing model and calibrate the productivity and payout demand processes to match aggregate U.S. corporate output and payout empirical moments. We find that model-implied payout yields and firm returns go a long way in reproducing key attributes of their empirical counterparts.

JEL-codes: E10 E13 G10 G11 G12 G35 (search for similar items in EconPapers)
Date: 2023-09
New Economics Papers: this item is included in nep-bec and nep-fmk
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2023-22

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