Working Paper: NBER ID: w21234
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: Term Structure; Dividend Strips; Equity Returns; Risk Premium
JEL Codes: G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| short-term dividend claims (G35) | higher risk premia (G19) |
| maturity of equity claims (G12) | returns (Y60) |
| maturity of equity claims (G12) | risk-return profile (G11) |
| maturity of equity claims (G12) | volatility of equity yields (G12) |
| downward-sloping term structure of equity risk premium (G12) | risk premium on dividend strips (G19) |
| observed phenomena (C90) | rejection of traditional macro-finance models (B26) |