Changing Risk, Changing Risk Premiums, and Dividend Yield Effects

Abstract

The authors 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, the authors 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, they find no reliable cross-sectional relation between dividend yield and risk-adjusted expected return. Copyright 1990 by the University of Chicago.