The Equity Risk Premium and the Term Structure
| Author | : Jacob Boudoukh |
| Publisher | : |
| Total Pages | : 27 |
| Release | : 1992 |
| Genre | : Interest rates |
| ISBN | : |
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Term Structure(s) of the Equity Risk Premium
| Author | : Leandro Gomes |
| Publisher | : |
| Total Pages | : 91 |
| Release | : 2019 |
| Genre | : |
| ISBN | : |
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By simultaneously using dividend and variance swap data, we show how the term structure of the equity risk premium varies over time and how its shape is affected by liquidity risk premia. The term structure is always positively sloped, while funding liquidity premia and betas explain the high unconditional returns for all dividend claims. Alphas for short-dated dividend claims are actually negative implying that their returns are too low, whereas alphas for long-dated claims seem to be positive. The term structure slope varies positively with the market risk premium, but it is never negative relative to the first contract -- due to the nearly zero risk premium in the first maturity -- and rarely hump-shaped in some empirical models. We show how the maturity term structure -- the risk premium for dividend strips with different maturities -- is connected to both the horizon term structure -- linked to the variance swap term structure -- and various funding liquidity measures. The risk premium is on average increasing with investment horizon, while the maturity risk premium depends primarily on the short-horizon risk premium, implying that short-horizon investors are the marginal ones. All our results hold in the US, the UK, Europe and Japan.
The Term Structure of Equity Risk Premia
| Author | : Ravi Bansal |
| Publisher | : |
| Total Pages | : 0 |
| Release | : 2019 |
| Genre | : |
| ISBN | : |
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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.
The Equity Risk Premium
| Author | : William N. Goetzmann |
| Publisher | : Oxford University Press |
| Total Pages | : 568 |
| Release | : 2006-11-16 |
| Genre | : Business & Economics |
| ISBN | : 0195148142 |
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This book aims to create a strong understanding of the empirical basis for the equity risk premium. Through the research and anaylsis of two scholars who are experts in this field, this volume presents the key issues that are paramount to investors, including whether or not to use historical data as a method of equity investing, and can the equity premium reflect changes in fundamental values and cash flows of the market.
Investor Information, Long-Run Risk, and the Term Structure of Equity
| Author | : Mariano M. Croce |
| Publisher | : |
| Total Pages | : 0 |
| Release | : 2007 |
| Genre | : |
| ISBN | : |
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We study the role of information in asset pricing models with long-run cash flow risk. When investors can distinguish short- from long-run consumption risks (full information), the model generates a sizable equity risk premium only if the equity term structure slopes up, contrary to the data. In general, the short- and long-run components are unidentified. We propose a sparsity-based bounded rationality model of long-run risk that is both parsimonious and fully identified from historical data. In contrast to full information, the model generates a sizable market risk premium simultaneously with a downward sloping equity term structure, as in the data.
Investor Information, Long-Run Risk, and the Term Structure of Equity
| Author | : Mariano (Max) Massimiliano Croce |
| Publisher | : |
| Total Pages | : 57 |
| Release | : 2012 |
| Genre | : |
| ISBN | : |
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We study the role of information in asset pricing models with long-run cash flow risk. When investors can distinguish short- from long-run consumption risks (full information), the model generates a sizable equity risk premium only if the equity term structure slopes up, contrary to the data. In general, the short- and long-run components are unidentified. We propose a sparsity-based bounded rationality model of long-run risk that is both parsimonious and fully identified from historical data. In contrast to full information, the model generates a sizable market risk premium simultaneously with a downward sloping equity term structure, as in the data.
Macroeconomic Risk Revisited
| Author | : Edward Golosov |
| Publisher | : |
| Total Pages | : 63 |
| Release | : 2017 |
| Genre | : |
| ISBN | : |
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Under what conditions can the term structure of risk premia be downward sloping, as reported in a number of recent empirical studies? I study fixed income and equity risk premium term structures and the long run risk in a continuous time Lucas-style economy subject to a persistent regime change modelled as a two-state Markov chain with a representative agent having Epstein-Zin-Weil preferences. I derive closed form solutions for the term structures of the risk premia of finite maturity bonds, the equity market and equity dividend strips, as well as the term structure of Sharpe ratio, and clarify under what conditions the risk term structures can be downward sloping. When fitted with historic data for U.S. consumption, this model is capable of generating downward sloping risk premium term structure for the parameters traditionally used in long run risk models.
Term Structure of Variance Risk Premium and Returns' Predictability
| Author | : Giacomo Bormetti |
| Publisher | : |
| Total Pages | : 49 |
| Release | : 2016 |
| Genre | : |
| ISBN | : |
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We derive an analytic relation between equity risk premium and the term structure of variance risk premium (VRP). Motivated by this result, we estimate the VRP term structure using a general and fully analytical discrete-time option pricing framework featuring multiple volatility components and multiple risk premia. We confirm the importance of VRP in improving option pricing performances and show the ability of multi-component GARCH models to produce realistic hump-shaped VRP term structure. We finally uncover the strong predictive power of the shape of the VRP term structure, summarized by its slope, on future stock-index returns.
The Equity Risk Premium
| Author | : Bradford Cornell |
| Publisher | : John Wiley & Sons |
| Total Pages | : 248 |
| Release | : 1999-05-26 |
| Genre | : Business & Economics |
| ISBN | : 9780471327356 |
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Das Thema Risikoprämie für Aktien (Equity Risk Premium) wird hier zum ersten Mal verständlich erklärt. Die Risikoprämie für Aktien stellt einen Renditeausgleich dar für das erhöhte Risiko, das ein Anleger bei der Investition in Aktien eingeht, im Vergleich zu einer Investition in risikofreie Staatsanleihen. Die Risikoprämie ist zwar von der Theorie her einfach, jedoch in der Praxis ein sehr komplexes Phänomen. Für Finanzentscheidungen ist es von größter Bedeutung, daß man das Prinzip der Risikoprämie versteht und es anwenden kann. Cornell erläutert das Thema Schritt für Schritt sehr anschaulich und ohne terminologischen Ballast. Zunächst wird die Risikoprämie im Zusammenhang mit der Geschichte des Aktienmarktes betrachtet. Der Haussemarkt der 90er dient dabei als Fallstudie. Cornell zeigt, welche Rückschlüsse man durch die Analyse der Risikoprämie im historischen Verlauf für den Aktienmarkt ziehen kann, z.B. ob Aktienkurse steigen oder fallen oder ob sich der Aktienmarkt verändert. Vorausschauende Schätzungen der Risikoprämie werden anhand verschiedener konkurrierender Modelle analysiert, wobei die Vorzüge der jeweiligen Methode mitbewertet werden. 'Equity Risk Premium' ist das erste Buch, das dieses wichtige Prinzip der Risiko-Nutzen-Analyse erschöpfend behandelt. Es vermittelt einen tiefen Einblick und deckt alle Grundlagen ab, damit Investoren fundierte Finanzentscheidungen treffen können. Ein absolutes Muß für institutionelle Anleger, Geldmanager und Finanzvorstände, die auf eine fundierte Marktanalyse zurückgreifen müssen. (06/99)
The Equity Risk Premium: A Contextual Literature Review
| Author | : Laurence B. Siegel |
| Publisher | : CFA Institute Research Foundation |
| Total Pages | : 69 |
| Release | : 2017-12-08 |
| Genre | : Business & Economics |
| ISBN | : 1944960325 |
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Research into the equity risk premium, often considered the most important number in finance, falls into three broad groupings. First, researchers have measured the margin by which equity total returns have exceeded fixed-income or cash returns over long historical periods and have projected this measure of the equity risk premium into the future. Second, the dividend discount model—or a variant of it, such as an earnings discount model—is used to estimate the future return on an equity index, and the fixed-income or cash yield is then subtracted to arrive at an equity risk premium expectation or forecast. Third, academics have used macroeconomic techniques to estimate what premium investors might rationally require for taking the risk of equities. Current thinking emphasizes the second, or dividend discount, approach and projects an equity risk premium centered on 3½% to 4%.
