Investors’ perception of performance is biased because the relevant measure, returns, is rarely displayed. Major indices ignore dividends, inducing mechanical underperformance on ex-dividend days.
Reconsidering Returns
Samuel Hartzmark, David Solomon
Research
66 Pages
Key Takeaways
Reporters: Financial journalists write more negative articles when dividend ex-days cause prices to drop, and important stock portfolios respond strongly in terms of betas to market price changes, but often do not respond to market dividends at all.
Mutual Funds: Mutual funds receive inflows for “beating the S&P 500,” comparing the price-only index with the fund's net asset value change.
Stocks vs. Bonds: If investors view the performance of equities in terms of price indices, they will erroneously perceive less outperformance of stocks relative to bonds.
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