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American Economic Review Vol. 106 No. 10 2016

On the Timing and Pricing of Dividends: Reply

JULES H. Van BINSBERGEN1; Ralph S. J. Koijen2

1 The Wharton School, University of Pennsylvania, Steinberg Dietrich Hall 2460, 3620 Locust Walk, Philadelphia, PA 19104 () · 2 London Business School, Regent's Park, London NW1 4SA, United Kingdom (e-mail: )

Abstract

Schulz (2016) replicates the findings of van Binsbergen, Brandt, and Koijen (2012)—henceforth, BBK—and agrees that the average pretax returns on short-term dividend strips are higher than those of the index, but argues that the after-tax returns are not. He thus provides a possible economic interpretation of the results in BBK: taxes. Schulz (2016) estimates the differential tax rates of dividends versus capital gains from ex-dividend day returns. We show that these estimated tax rates are suspect and imprecisely measured, peaking at over 100 percent in some periods. The results in BBK are robust to using tax rates from the literature (Sialm 2009). The arguments in Schulz (2016) thus crucially depend on implausibly large tax esti mates. We further discuss two other financial market imperfections discussed in the literature and show that they are also unlikely to explain the results in BBK.

DOI
10.1257/aer.20160698
Volume
106
Issue
10
Pages
3224-3237
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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