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Asset pricing with dividend surprises

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  • Guo, Pancheng
  • Li, Shi
  • Wang, Yan

Abstract

In this paper, we derive an intertemporal dividend-surprise-augmented asset-pricing model and show that the expected risk premium compensates for stock returns’ exposure to (i) the market-wide dividend-surprise hedge portfolio based on dividend yield surprise and volatilities, in addition to (ii) the excess market return without dividend yield (as in the conventional CAPM) and (iii) the market-wide dividend yield factor without uncertainty. Our model implies that the uncertainty on dividend-surprise yield is attributable to systematic risk and should be priced at the cross-section, thereby theoretically supporting the existing empirical studies on the relation between dividend surprise and cross-sectional stock returns.

Suggested Citation

  • Guo, Pancheng & Li, Shi & Wang, Yan, 2023. "Asset pricing with dividend surprises," Finance Research Letters, Elsevier, vol. 58(PB).
    • Handle: RePEc:eee:finlet:v:58:y:2023:i:pb:s1544612323007250
    DOI: 10.1016/j.frl.2023.104353
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    References listed on IDEAS

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