Skip to main content

Please enter a keyword and click the arrow to search the site

Stock market and no-dividend stocks

Subject

Finance

Publishing details

Social Sciences Research Network

Authors / Editors

Atmaz A;Basak S

Biographies

Publication Year

2019

Abstract

We develop a 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 qualitative implications that support several empirical regularities on the stock market which leading consumption-based asset pricing models have difficulty in 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. 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.

Keywords

Stock market; no-dividend stocks; dynamic asset pricing; incomplete information; stock market correlation with consumption; market risk premium-volatility relation; term structure of equity premia

Series

Social Sciences Research Network

Available on ECCH

No


Select up to 4 programmes to compare

Select one more to compare
×
subscribe_image_desktop 5949B9BFE33243D782D1C7A17E3345D0

Sign up to receive our latest news and business thinking direct to your inbox

×

Sign up to receive our latest course information and business thinking

Leave your details above if you would like to receive emails containing the latest thought leadership, invitations to events and news about courses that could enhance your career. If you would prefer not to receive our emails, you can still access the case study by clicking the button below. You can opt-out of receiving our emails at any time by visiting: https://london.edu/my-profile-preferences or by unsubscribing through the link provided in our emails. View our Privacy Policy for more information on your rights.