Working Paper: NBER ID: w17416
Authors: Jules H. van Binsbergen; Wouter Hueskes; Ralph Koijen; Evert B. Vrugt
Abstract: We study a new data set of prices of traded dividends with maturities up to 10 years across three world regions: the US, Europe, and Japan. We use these asset prices to construct equity yields, analogous to bond yields. We decompose these yields to obtain a term structure of expected dividend growth rates and a term structure of risk premia, which allows us to decompose the equity risk premium by maturity. We find that both expected dividend growth rates and risk premia exhibit substantial variation over time, particularly for short maturities. In addition to predicting dividend growth, equity yields help predict other measures of economic growth such as consumption growth. We relate the dynamics of growth expectations to recent events such as the financial crisis and the earthquake in Japan.
Keywords: equity yields; dividend growth; risk premia; economic growth; Bayesian model averaging
JEL Codes: E32; E43; E44; F01; G10; G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| forward equity yields (G12) | dividend growth rates (G35) |
| forward equity yields (G12) | consumption growth (E20) |
| risk premia (G22) | forward equity yields (G12) |
| economic downturns (F44) | forward equity yields (G12) |
| forward equity yields (G12) | risk premia (G22) |
| forward equity yields (G12) | expected dividend growth (G35) |
| economic expectations (D84) | forward equity yields (G12) |