Working Paper: CEPR ID: DP7573
Authors: Rui Albuquerque
Abstract: This paper analyzes the asset pricing implications of periodic cash payouts within the context of a stationary rational expectations model with heterogeneous investors. The periodicity of cash payouts provides a natural motivation for time-varying conditional volatility in stock returns. I show that the unconditional distribution of returns is a mixture of normals distribution, which has non-trivial skewness properties. I examine how conditional volatility, trading volume and skewness in stock returns are related to information dispersion and liquidity in the stock market. The model provides a rationale for why firm returns have positive skewness while market returns have negative skewness.
Keywords: Investor heterogeneity; Periodic cash payouts; Skewness; Turnover
JEL Codes: G12; G14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Firm-level returns (D21) | positive skewness (C46) |
| Market-level returns (G19) | negative skewness (C46) |
| Liquidity shocks (E44) | negative association with skewness in stock returns (C46) |
| Information asymmetry (D82) | negative association with skewness in stock returns (C46) |
| Rebalancing trades by informed investors (G11) | increased stock prices (G10) |
| Rebalancing trades by informed investors (G11) | altered expected returns (G19) |
| Increased stock prices (G19) | positive skewness in expected returns (C46) |
| Periodic cash payouts (G35) | time-varying conditional volatility in stock returns (C22) |
| time-varying conditional volatility in stock returns (C22) | positive skewness in expected returns (C46) |
| Periodic cash payouts (G35) | positive skewness in expected returns (C46) |