Working Paper: CEPR ID: DP10633
Authors: Jules H. Van Binsbergen; Ralph S. J. Koijen
Abstract: We summarize and extend the new literature on the term structure of equity. Short- term equity claims, or dividend strips, have on average significantly higher returns than the aggregate stock market. The returns on short-term dividend claims are risky as measured by volatility, but safe as measured by market beta. These facts are hard to reconcile with traditional macro-finance models and we provide an overview of new models that can reproduce some of these facts. We relate our evidence on dividend strips to facts about other asset classes such as nominal and corporate bonds, volatility, and housing. We conclude by discussing the broader economic implications by linking the term structure of returns to real economic decisions such as hiring and investment.
Keywords: Corporate Bonds; Equity; Fixed Income; Term Structure; Volatility
JEL Codes: G12; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| short-term equity claims or dividend strips (G12) | significantly higher returns than the aggregate stock market (G17) |
| short-term equity claims or dividend strips (G12) | high volatility and low market beta (C46) |
| risk premia for short-maturity claims (G22) | higher than for the aggregate stock market (G19) |
| Sharpe ratios for short-maturity claims (G12) | higher than for the aggregate stock market (G19) |
| volatility of equity yields (G12) | downward sloping with maturity (D15) |