Stock Market and No-Dividend Stocks

Atmaz, A and Basak, S (2021) Stock Market and No-Dividend Stocks. Journal of Finance. ISSN 0022-1082 (Accepted)

Abstract

We develop a stationary model of the aggregate stock market featuring both dividend-paying and no dividend stocks within a familiar, parsimonious consumption-based equilibrium framework. We find that such a simple feature leads to profound implications supporting several stock market empirical regularities that leading consumption-based asset pricing models have difficulty reconciling. We show that the presence of no-dividend stocks in the stock market leads to a lower correlation between the stock market return and aggregate consumption growth rate, a non-monotonic and even a negative relation between the stock market risk premium and its volatility, and a downward sloping term structure of equity risk premia. When we quantify these effects, we find them to be economically significant. We also find that no-dividend stocks command lower mean returns but have higher return volatilities and higher market betas than comparable dividend-paying stocks, consistently with empirical evidence. We provide straightforward intuition for all these results and the underlying
economic mechanisms at play.

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Item Type: Article
Subject Areas: Finance
Date Deposited: 21 Jun 2021 13:20
Date of first compliant deposit: 21 Jun 2021
Last Modified: 25 Jun 2021 13:20
URI: https://lbsresearch.london.edu/id/eprint/1823
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