Jules H. Van Binsbergen
Stanford University - Graduate School of Business; National Bureau of Economic Research (NBER)
APG Asset Management
Ralph S. J. Koijen
University of Chicago - Booth School of Business
Evert B. Vrugt
VU University Amsterdam, PGO-IM
March 14, 2012
Becker Friedman Institute for Research in Economics Working Paper No. 2012-007
We study a new data set of dividend derivatives with maturities up to 10 years across three world regions: the US, Europe, and Japan. We use these asset prices to construct equity yields, analogous to bond yields. We decompose the equity yields to obtain a term structure of expected dividend growth rates and a term structure of risk premia, which decomposes the equity risk premium by maturity. We find that the slope of the term structure of risk premia is pro-cyclical, whereas the slope of the term structure of expected dividend growth rates is counter-cyclical. The comovement of yields across regions is on average higher for long-maturity yields than for short-maturity yields, whereas the variation in this comovement is much higher for short-maturity yields.
Number of Pages in PDF File: 52
Keywords: Growth expectations, Equity risk premium, Term structure of equityworking papers series
Date posted: January 27, 2011 ; Last revised: July 24, 2012
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