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The predictive power of the dividend risk premium

Avino, D., Stancu, A. and Wese Simen, C. (2019) The predictive power of the dividend risk premium. Journal of Financial and Quantitative Analysis. ISSN 1756-6916 (In Press)

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Abstract/Summary

We show that the dividend growth rate implied by the options market is informative about(i)the expected dividend growth rate and (ii) the expected dividend risk premium. We model the expected dividend risk premium and explore its implications for the predictability of dividend growth and stock market returns. Correcting for the expected dividend risk premium strengthens the evidence of dividend growth and stock market return predictability both in-and out-of-sample. Economically,a market timing investor who accounts for the time varying expected dividend risk premium realizes an additional utility gain of 2.02% per year.

Item Type:Article
Refereed:Yes
Divisions:Henley Business School > ICMA Centre
ID Code:83250
Publisher:Cambridge University Press

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