Bridge over ocean
1 January 1998 Financial Analysts Journal Volume 54, Issue 1

Stripping the S&P 500 Index

  1. Michael J. Brennan

A new market in S&P 500 Index dividend strips, which are claims to a year's dividend on the index, would not only improve risk sharing but, more importantly, would also serve to focus investor attention on the fundamentals that determine the value of the index rather than simply on the future resale value of the index. Such a market would also reveal the market assessment of certainty-equivalent growth rates in dividends and thus help to promote rational pricing. Calculations are presented to illustrate the prices at which the index strips might trade, the associated certainty-equivalent growth rates, and the expected returns for given expected dividend growth rates.

Read the Complete Article in Financial Analysts Journal Financial Analysts Journal CFA Institute Member Content

We’re using cookies, but you can turn them off in Privacy Settings.  Otherwise, you are agreeing to our use of cookies.  Accepting cookies does not mean that we are collecting personal data. Learn more in our Privacy Policy.