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Changing Risk, Changing Risk Premiums, and Dividend Yield Effects

Nai-Fu Chen, Bruce Grundy and Robert F. Stambaugh
The Journal of Business
Vol. 63, No. 1, Part 2: A Conference in Honor of Merton H. Miller's Contributions to Finance and Economics (Jan., 1990), pp. S51-S70
Stable URL: http://www.jstor.org/stable/2353260
Page Count: 20
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Changing Risk, Changing Risk Premiums, and Dividend Yield Effects
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Abstract

We investigate the cross-sectional relation between dividend yield and expected return and attempt to include various effects of changing risk measures and changing risk premiums. A stock's risk is measured by its sensitivities to two factors, a market factor and a changing-risk-premium factor. After analyzing dividend-related changes in risk measures, we investigate the presence of dividend effects in expected returns using four methods, each imposing a different structure on the temporal behavior of risk measures and risk premiums. For each method, we find no reliable cross-sectional relation between dividend yield and risk-adjusted expected return.

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