Income Insurance and the Equilibrium Term-Structure of Equity

83 Pages Posted: 15 Jun 2016

See all articles by Roberto Marfè

Roberto Marfè

University of Turin - Collegio Carlo Alberto

Date Written: June 8, 2016

Abstract

Output, wages and dividends feature term-structures of variance-ratios respectively flat, increasing and decreasing. Income insurance from shareholders to workers empirically and theoretically explains these term-structures. Risk sharing smooths wages but only concerns transitory risk and, hence, enhances the short-run dividend risk. A simple general equilibrium model, where labor rigidity affects dividend dynamics and the price of short-run risk, reconciles standard asset pricing facts with the term-structures of equity premium and volatility and those of macroeconomic variables, at odds in leading models. Consistently, actual labor-share variation largely forecasts dividend strips risk, premium and slope.

Keywords: term structure of equity, income insurance, dividend strips, risk sharing, equilibrium asset pricing

JEL Classification: D51, E21, G12

Suggested Citation

Marfè, Roberto, Income Insurance and the Equilibrium Term-Structure of Equity (June 8, 2016). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2792349

Roberto Marfè (Contact Author)

University of Turin - Collegio Carlo Alberto ( email )

Piazza Arbarello 8
Torino, Torino 10122
Italy

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
99
Abstract Views
2,080
rank
285,604
PlumX Metrics