Levered Returns

Ivo Welch

No 22150, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Do financial markets properly reflect leverage? Unlike Gomes and Schmid (2010) who examine this question with a structural approach (using long-term monthly stock characteristics), my paper examines it with a quasi-experimental approach (using short-term a discrete event). After a firm has declared a dividend (i.e., after the news release), but in the few days that precede the payment date, an investor in the traded equity owns a claim to the dividend cash plus the remaining firm equity within the corporate shell. After the payment date, the shell contains only the dividend-sans-cash firm equity. The empirical evidence confirms rational increases in volatilities but shows unexpected decreases in average returns. The best explanation is behavioral.

JEL-codes: G12 G31 G32 G35 (search for similar items in EconPapers)
Date: 2016-04
New Economics Papers: this item is included in nep-cfn
Note: AP CF
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