Levered Returns

Ivo Welch

NBER Working Paper No. 22150
Issued in April 2016
NBER Program(s):AP, CF

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.

You may purchase this paper on-line in .pdf format from ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.


Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w22150

Users who downloaded this paper also downloaded* these:
Baker, Hoeyer, and Wurgler w22116 The Risk Anomaly Tradeoff of Leverage
Backus, Boyarchenko, and Chernov w22162 Term Structures of Asset Prices and Returns
Benmelech, Meisenzahl, and Ramcharan w22148 The Real Effects of Liquidity During the Financial Crisis: Evidence from Automobiles
Brunnermeier and Sannikov w22133 On the Optimal Inflation Rate
Goetzmann, Kim, and Shiller w22143 Crash Beliefs From Investor Surveys
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us