A Model-Free Term Structure of U.S. Dividend Premiums

56 Pages Posted: 4 Aug 2018 Last revised: 29 May 2019

See all articles by Maxim Ulrich

Maxim Ulrich

Karlsruhe Institute of Technology

Stephan Florig

Karlsruhe Institute of Technology

Christian Wuchte

Karlsruhe Institute of Technology

Date Written: April 23, 2019

Abstract

We construct a model-free term structure of dividend risk premiums from option prices and aggregate analyst forecasts. Applying the method to 2004-2017 U.S. data, we find it is hump-shaped. Its level increases in business cycle contractions and decreases during expansions. The on average negative dividend term premium steepens in contractions and flattens in expansions, driven by strong variations in short-horizon dividend premiums. Buying the next year of S&P 500 dividends whenever the one-year dividend risk premium is positive has earned twice the Sharpe ratio of the index.

Keywords: Dividend Risk Premium, Dividend Term Structure, Dividend Growth

JEL Classification: G12

Suggested Citation

Ulrich, Maxim and Florig, Stephan and Wuchte, Christian, A Model-Free Term Structure of U.S. Dividend Premiums (April 23, 2019). Available at SSRN: https://ssrn.com/abstract=3217096 or http://dx.doi.org/10.2139/ssrn.3217096

Maxim Ulrich (Contact Author)

Karlsruhe Institute of Technology ( email )

Bluecherstrasse 17
Karlsruhe, Baden Württemberg 76131
Germany
+4972160844270 (Phone)

HOME PAGE: http://risk.fbv.kit.edu/c-ram

Stephan Florig

Karlsruhe Institute of Technology ( email )

Kaiserstraße 12
Karlsruhe, Baden Württemberg 76131
Germany

Christian Wuchte

Karlsruhe Institute of Technology ( email )

Kaiserstraße 12
Karlsruhe, Baden Württemberg 76131
Germany

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