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Equity Yields

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  • 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.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17416.

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Date of creation: Sep 2011
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Publication status: published as van Binsbergen, Jules & Hueskes, Wouter & Koijen, Ralph & Vrugt, Evert, 2013. "Equity yields," Journal of Financial Economics, Elsevier, vol. 110(3), pages 503-519.
Handle: RePEc:nbr:nberwo:17416

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Cited by:
  1. Ralph S.J. Koijen & Tobias J. Moskowitz & Lasse Heje Pedersen & Evert B. Vrugt, 2013. "Carry," NBER Working Papers 19325, National Bureau of Economic Research, Inc.
  2. Jäckel, Christoph, 2013. "Model uncertainty and expected return proxies," MPRA Paper 51978, University Library of Munich, Germany.

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