Finance Area Seminar: Xinwei Li
Xinwei Li
INSEAD Business School
The Cross-Section of Dividend Discount Rates
Date: Tuesday, February 11, 2025
Time: 11:30 PM - 1:00 PM
Location: Armstrong building, Room 265
All are cordially invited to attend.
Abstract
A stock can be viewed as a collection of dividend strips, each representing a claim to a single dividend. I study how individual dividends are priced across the cross-section of U.S. stocks. I construct and estimate the prices of synthetic dividend strips with 1-year and 2-year maturities using equity options. I document that cross-sectional variations in short-term dividend prices are substantial and driven predominantly by differences in discount rates. Short-term dividend strips with lower price-dividend ratios deliver higher average returns than those with higher price-dividend ratios. Moreover, the cross-sectional variations in maturity-specific discount rates appear to decline with maturity, at least at the short end. Finally, I interpret these cross-sectional variations in discount rates using asset pricing theory. I evaluate three leading cross-sectional asset pricing models and find that the model by Kogan and Papanikolaou (2013) aligns most closely with my findings.