Abstract - On the Timing and Pricing of Cash Flows
We study the pricing of short-term assets that are claims to the dividends of the aggregate stock market during a period of up to three years. To compute these prices, we apply the put-call parity to a new data set of liquid, exchange-traded S&P500 options. We compare the asset pricing properties of the claim to short-term dividends to the pricing of the aggregate stock market, which is the claim to all future dividends. Using this approach, we find that the short-term asset has high expected
returns, a beta to the market of 0.5, is excessively volatile, and has returns that are highly predictable. The returns on short-term dividend claims cannot be explained by standard asset pricing models, which makes such claims important candidate test assets. We compare our empirical results to their theoretical equivalents in leading asset pricing models and find that none of them predict the empirical findings we document.
University of Chicago, Booth School of Business