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Reaching for dividends

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  • Jiang, Hao
  • Sun, Zheng

Abstract

Interest rates dived into uncharted territories for an extended period after the financial crisis. What is the impact on investor behavior and asset prices? We find that when interest rates fall, flows into income-oriented equity funds increase, with higher dividend-yielding funds attracting more inflows after controlling for fund returns. Responding to their incentives, income fund managers tend to aggressively over-weight high dividend stocks in a low-rate environment. This behavior of “reaching for dividends” generates market impact: high dividend stocks tend to have higher prices when interest rates fall, and lower excess returns when interest rates subsequently normalize.

Suggested Citation

  • Jiang, Hao & Sun, Zheng, 2020. "Reaching for dividends," Journal of Monetary Economics, Elsevier, vol. 115(C), pages 321-338.
    • Handle: RePEc:eee:moneco:v:115:y:2020:i:c:p:321-338
    DOI: 10.1016/j.jmoneco.2019.08.003
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    Cited by:

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    3. Akkoyun, Cagri & Ersahin, Nuri & James, Christopher M., 2023. "Crowded out from the beginning: Impact of government debt on corporate financing," Journal of Financial Intermediation, Elsevier, vol. 56(C).
    4. Ed-Dafali, Slimane & Patel, Ritesh & Iqbal, Najaf, 2023. "A bibliometric review of dividend policy literature," Research in International Business and Finance, Elsevier, vol. 65(C).
    5. Ainsworth, Andrew & Lee, Adrian D., 2023. "Sharing the dividend tax credit pie: The influence of individual investors on ex-dividend day returns," Journal of Financial Markets, Elsevier, vol. 62(C).
    6. Thomas J. Chemmanur & Zeyu Sun & Jing Xie, 2024. "Keeping up with the Joneses: Corporate Dividends and Common Institutional Blockholders," Working Papers 202407, University of Macau, Faculty of Business Administration.
    7. Kumar, Alok & Lei, Zicheng & Zhang, Chendi, 2022. "Dividend sentiment, catering incentives, and return predictability," Journal of Corporate Finance, Elsevier, vol. 72(C).

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    More about this item

    Keywords

    Low interest rates; Monetary policy; Dividends; Income funds; Flows;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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