Duration-Based Stock Valuation: Reassessing Stock Market Performance and Volatility

40 Pages Posted: 27 May 2020 Last revised: 14 Nov 2020

See all articles by Jules H. van Binsbergen

Jules H. van Binsbergen

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

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Date Written: June 7, 2020

Abstract

Using a panel of international government bond data, I construct fixed income portfolios that match the duration of the dividend strips of the corresponding local aggregate stock market index. I find that these bond portfolios have performed as well as --- if not better than --- their stock counterparts in the past half century while exhibiting similar (or even higher) levels of volatility. These results provide a novel perspective on both the equity risk premium and excess volatility puzzles (bubbles). I present several potential explanations, and discuss further the implications for macroeconomics, monetary economics, asset pricing, and corporate finance.

Keywords: Stock Market Performance, Excess Volatility, Duration, Dividend Risk Premium, COVID-19

Suggested Citation

van Binsbergen, Jules H., Duration-Based Stock Valuation: Reassessing Stock Market Performance and Volatility (June 7, 2020). Available at SSRN: https://ssrn.com/abstract=3611428 or http://dx.doi.org/10.2139/ssrn.3611428

Jules H. Van Binsbergen (Contact Author)

University of Pennsylvania - The Wharton School ( email )

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