TY  - JOUR
AU  - Belo,Frederico
AU  - Collin-Dufresne,Pierre
AU  - Goldstein,Robert S.
TI  - Endogenous Dividend Dynamics and the Term Structure of Dividend Strips
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 18450
PY  - 2012
Y2  - October 2012
UR  - http://www.nber.org/papers/w18450
L1  - http://www.nber.org/papers/w18450.pdf
N1  - Author contact info:
Frederico Belo
Carlson School of Management
University of Minnesota
321 19th Avenue South
Minneapolis, MN 55455
Tel: 612/626-7813
Fax: 612/626-1335
E-Mail: fbelo@umn.edu

Pierre Collin-Dufresne
Graduate School of Business
Columbia University
Uris Hall 404
3022 Braodway
New York, NY 10027
Tel: 212/854-6471
E-Mail: pc2415@columbia.edu

Robert Goldstein
University of Minnesota
Finance Department
3-125 Carlson School of Management
321 19th Avenue South
Minneapolis, MN  55455
Tel: 612/624-8581
E-Mail: golds144@umn.edu
AB  - Many leading asset pricing models predict that the term structures of expected returns and volatilities on dividend strips are strongly upward sloping. Yet the empirical evidence suggests otherwise. This discrepancy can be reconciled if these models replace their exogenously specified dividend dynamics with processes that are derived endogenously from capital structure policies that generate stationary leverage ratios. Under this policy, shareholders are being forced to divest (invest) when leverage is low (high), which shifts risk from long-horizon to short-horizon dividend strips. This framework also generates stock volatility that is higher than long-horizon dividend volatility, even with constant market prices of risk.
ER  -