On variance bounds for asset price changes

In this paper, I consider variance bounds for stock price changes in a general setting that allows for ex-dividend stock prices, risk-averse investors, and exponentially growing dividends. I show that providing investors with more information about future dividends can either increase or decrease the variance of stock price changes, depending on key parameters, namely, those governing the properties of dividends and the stochastic discount factor. This finding contrasts with the results of Engel (2005), who shows that news about future dividends will always decrease the variance of stock price changes in a specialized setting with cum-dividend stock prices and risk-neutral investors.