Risk, Return and Dividends

Andrew Ang () and Jun Liu

University of California at Los Angeles, Anderson Graduate School of Management from Anderson Graduate School of Management, UCLA

Abstract: We characterize the joint dynamics of expected returns, stochastic volatility, and prices. In particular, with a given dividend process, one of the processes of the expected return, the stock volatility, or the price-dividend ratio fully determines the other two. For example, the stock volatility determines the expected return and the price-dividend ratio. By parameterizing one, or more, of expected returns, volatility, or prices, common empirical specifications place strong, and sometimes inconsistent, restrictions on the dynamics of the other variables. Our results are useful for understanding the risk-return trade-off, as well as characterizing the predictability of stock returns.

Keywords: risk-return trade-off; risk premium; stochastic volatility; predictability (search for similar items in EconPapers)
Date: 2005-03-01
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Related works:
Journal Article: Risk, return, and dividends (2007)
Working Paper: Risk, Return and Dividends (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:cdl:anderf:qt1s25177n

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