52 Pages Posted: 27 Jan 2011 Last revised: 15 Sep 2013
Date Written: March 14, 2012
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.
Keywords: Growth expectations, Equity risk premium, Term structure of equity
Suggested Citation: Suggested Citation
van Binsbergen, Jules H. and Hueskes, Wouter and Koijen, Ralph S. J. and Vrugt, Evert B., Equity Yields (March 14, 2012). Becker Friedman Institute for Research in Economics Working Paper No. 2012-007. Available at SSRN: https://ssrn.com/abstract=1748862 or http://dx.doi.org/10.2139/ssrn.1748862