Andrew Ang

Risk, Return, and Dividends

Coauthor(s): Jun Liu.


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We characterize the joint dynamics of dividends, 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, together with dividends, the stock volatility process fully determines the dynamics of 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 counter-factual, restrictions on the dynamics of the other variables. Our relations are useful for understanding the risk-return trade-off, as well as characterizing the predictability of stock returns.

Above is a pre-print version of the article. The final version may be found at

Source: Journal of Financial Economics
Exact Citation:
Ang, Andrew, and Jun Liu. "Risk, Return, and Dividends." Journal of Financial Economics 85, no. 1 (2007): 1-38.
Volume: 85
Number: 1
Pages: 1-38
Date: 2007