Many studies report that American option investors often exercise their positions suboptimally late. Yet, when that can happen in case of puts, there is an arbitrage opportunity in perfect markets, exploitable by longing the asset-and-riskfree-asset portfolio replicating the put and shorting the...

Using a new variable based on a model of dividend smoothing, we find dividend growth is highly predictable and cash flow news contributes importantly to return variability. Cash flow betas derived from this predictability are central to explaining the size effect in the cross section of returns....