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The Term Structure of Returns: Facts and Theory

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  • 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.

Suggested Citation

  • Jules H. van Binsbergen & Ralph S.J. Koijen, 2015. "The Term Structure of Returns: Facts and Theory," NBER Working Papers 21234, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:21234
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    Cited by:

    1. Eran Hoffmann, 2018. "The Cyclical Composition of Startups," 2018 Meeting Papers 553, Society for Economic Dynamics.
    2. Olkhov, Victor, 2018. "Expectations, Price Fluctuations and Lorenz Attractor," MPRA Paper 89105, University Library of Munich, Germany.
    3. Backus, David & Boyarchenko, Nina & Chernov, Mikhail, 2018. "Term structures of asset prices and returns," Journal of Financial Economics, Elsevier, vol. 129(1), pages 1-23.
    4. Weber, Michael, 2018. "Cash flow duration and the term structure of equity returns," Journal of Financial Economics, Elsevier, vol. 128(3), pages 486-503.
    5. Roberto Marfè, 2015. "Labor Rigidity and the Dynamics of the Value Premium," Carlo Alberto Notebooks 429, Collegio Carlo Alberto.
    6. Roberto Marfè, 2016. "Labor Rigidity, Ination Risk and Bond Returns," Carlo Alberto Notebooks 461, Collegio Carlo Alberto.
    7. repec:oup:revfin:v:21:y:2017:i:3:p:945-985. is not listed on IDEAS
    8. Taiji Furusawa & Tomohiko Inui & Keiko Ito & Heiwai Tang, 2017. "Global Sourcing and Domestic Production Networks," CESifo Working Paper Series 6658, CESifo Group Munich.
    9. Olkhov, Victor, 2019. "Econophysics of Asset Price, Return and Multiple Expectations," MPRA Paper 91587, University Library of Munich, Germany.
    10. Pierlauro Lopez, 2016. "Welfare Implications of the Term Structure of Returns: Should Central Banks Fill Gaps or Remove Volatility?," 2016 Meeting Papers 742, Society for Economic Dynamics.
    11. Andries, Marianne & Eisenbach, Thomas M. & Schmalz, Martin C. & Wang, Yichuan, 2015. "The term structure of the price of variance risk," Staff Reports 736, Federal Reserve Bank of New York.
    12. TAKAMIZAWA, Hideyuki, 2018. "An Equilibrium Model of Term Structures of Bonds and Equities," Working Paper Series G-1-19, Hitotsubashi University Center for Financial Research.
    13. Dew-Becker, Ian & Giglio, Stefano & Le, Anh & Rodriguez, Marius, 2017. "The price of variance risk," Journal of Financial Economics, Elsevier, vol. 123(2), pages 225-250.
    14. Doh, Taeyoung & Wu, Shu, 2016. "The Equilibrium Term Structure of Equity and Interest Rates," Research Working Paper RWP 16-11, Federal Reserve Bank of Kansas City.
    15. repec:eee:jfinec:v:127:y:2018:i:2:p:197-225 is not listed on IDEAS
    16. repec:eee:jbfina:v:96:y:2018:i:c:p:126-135 is not listed on IDEAS
    17. Likuan Qin & Vadim Linetsky & Yutian Nie, 2016. "Long Forward Probabilities, Recovery and the Term Structure of Bond Risk Premiums," Papers 1601.06477, arXiv.org.
    18. Cejnek, Georg & Randl, Otto, 2016. "Risk and return of short-duration equity investments," Journal of Empirical Finance, Elsevier, vol. 36(C), pages 181-198.
    19. repec:eee:jfinec:v:132:y:2019:i:3:p:182-204 is not listed on IDEAS
    20. Guihai Zhao, 2018. "Ambiguity, Nominal Bond Yields and Real Bond Yields," Staff Working Papers 18-24, Bank of Canada.
    21. John H. Cochrane, 2017. "Macro-Finance," Review of Finance, European Finance Association, vol. 21(3), pages 945-985.

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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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