Dividends, taxes, and normative portfolio theory

Research output: Contribution to journalArticlepeer-review

5 Scopus citations


This paper presents a normative methodology for selection of optimal portfolios in light of possible differential tax treatments of dividends and capital gains. This methodology is applied to actual market data. It is shown that the selection of optimal portfolios is virtually independent of the investor's tax rate. Implications of this result for understanding the relationship between dividends and rates of return are discussed. It is concluded that dividends are not priced as cash flows; instead they do matter as they relate to the paying firm. Further, portfolio dividend yields are highly positively correlated with investor risk aversion.

Original languageEnglish (US)
Pages (from-to)121-131
Number of pages11
JournalJournal of Economics and Business
Issue number2
StatePublished - May 1990

ASJC Scopus subject areas

  • General Business, Management and Accounting
  • Economics and Econometrics


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