Disaster Recovery and the Term Structure of Dividend Strips

60 Pages Posted: 2 Jun 2020

See all articles by Michael Hasler

Michael Hasler

University of Texas at Dallas, Naveen Jindal School of Management, Department of Finance

Roberto Marfè

University of Turin - Collegio Carlo Alberto

Date Written: May 1, 2020

Abstract

Recent empirical findings document downward-sloping term structures of equity return volatility and risk premia. An equilibrium model with rare disasters followed by recoveries helps reconcile theory with empirical observations. Indeed, recoveries outweigh the upward-sloping effect of time-varying disaster intensity and expected growth, generating downward-sloping term structures of dividend growth risk, equity return volatility, and equity risk premia. In addition, the term structure of interest rates is upward-sloping when accounting for recoveries and downward-sloping otherwise. The model quantitatively reconciles high risk premia and a low risk-free rate with the shape of the term structures, which are at odds in other models.

Keywords: Recovery, Rare disasters, Term structures of equity, Dividend strips, Asset pricing puzzles

JEL Classification: D53, D51, E21, G12, G13

Suggested Citation

Hasler, Michael and Marfè, Roberto, Disaster Recovery and the Term Structure of Dividend Strips (May 1, 2020). Journal of Financial Economics (JFE), 2020, Available at SSRN: https://ssrn.com/abstract=3590252

Michael Hasler (Contact Author)

University of Texas at Dallas, Naveen Jindal School of Management, Department of Finance ( email )

800 West Campbell
Richarson, TX 75080
United States

Roberto Marfè

University of Turin - Collegio Carlo Alberto ( email )

Piazza Arbarello 8
Torino, Torino 10122
Italy

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
56
Abstract Views
292
rank
498,995
PlumX Metrics