Implied dividend volatility and expected growth

Gormsen, Niels J., Koijen, Ralph S.J. and Martin, Ian W.R. ORCID: 0000-0001-8373-5317 (2021) Implied dividend volatility and expected growth. AEA Papers and Proceedings, 111. 361 - 365. ISSN 2574-0768

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Abstract

We study the behavior of implied dividend volatility, constructed from the prices of options on index-level dividends, during the COVID-19 pandemic. We use these data to construct a lower bound on expected excess returns on dividend claims and find that the bound moves significantly over time. However, most of the variation in dividend futures prices reflects changes in growth expectations rather than expected excess returns, making them valuable assets to uncover growth expectations. We conclude that the short-term economic outlook is uncertain and not expected to recover in the near term.

Item Type:	Article
Additional Information:	© 2021 American Economic Association
Divisions:	Finance
Subjects:	H Social Sciences > HG Finance H Social Sciences > HB Economic Theory
JEL classification:	G - Financial Economics > G3 - Corporate Finance and Governance > G35 - Payout Policy G - Financial Economics > G1 - General Financial Markets > G13 - Contingent Pricing; Futures Pricing I - Health, Education, and Welfare > I1 - Health > I12 - Health Production: Nutrition, Mortality, Morbidity, Suicide, Substance Abuse and Addiction, Disability, and Economic Behavior E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy Formation, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E66 - General Outlook and Conditions E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
Date Deposited:	02 Apr 2025 14:00
Last Modified:	09 May 2025 20:08
URI:	http://eprints.lse.ac.uk/id/eprint/127796

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