Dividend Dynamics and the Term Structure of Dividend Strips

Frederico Belo, Pierre Collin-Dufresne, Robert S. Goldstein

Research output: Contribution to journalArticlepeer-review

55 Scopus citations


Many leading asset pricing models are specified so that the term structure of dividend volatility is either flat or upward sloping. These models predict that the term structures of expected returns and volatilities on dividend strips (i.e., claims to dividends paid over a prespecified interval) are also upward sloping. However, the empirical evidence suggests otherwise. This discrepancy can be reconciled if these models replace their proposed dividend dynamics with processes that generate stationary leverage ratios. Under such policies, shareholders are forced to divest (invest) when leverage is low (high), which shifts risk from long- to short-horizon dividend strips.

Original languageEnglish (US)
Pages (from-to)1115-1160
Number of pages46
JournalJournal of Finance
Issue number3
StatePublished - Jun 1 2015

Bibliographical note

Publisher Copyright:
© 2015 the American Finance Association.


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