The Term Structure of Equity Risk Premia / Ravi Bansal, Shane Miller, Dongho Song, Amir Yaron.

Format:

Book

Author/Creator:

Bansal, Ravi.

Contributor:

National Bureau of Economic Research.

Miller, Shane.

Song, Dongho.

Yaron, Amir.

Series:

Working Paper Series (National Bureau of Economic Research) no. w25690.

NBER working paper series no. w25690

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2019.

Summary:

We use traded equity dividend strips from U.S., Europe, and Japan from 2004-2017 to study the slope of the term structure of equity dividend risk premia. In the data, a robust finding is that the term structure of dividend risk premia (growth rates) is positively (negatively) sloped in expansions and negatively (positively) sloped in recessions. We develop a consumption-based regime switching model which matches these robust data-features and the historical probabilities of recession and expansion regimes. The unconditional population term structure of dividend-risk premia in the regime-switching model, as in standard asset pricing models (habits and long-run risks), is increasing with maturity. The regime-switching model also features a declining average term structure of dividend risk-premia if recessions are over-represented in a short sample, as is the case in the data sample from Europe and Japan. In sum, our analysis shows that the empirical evidence in dividend strips is entirely consistent with a positively sloped term structure of dividend risk-premia as implied by standard asset pricing models.

Notes:

Print version record

March 2019.