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Author: Hengjie Ai Publisher: ISBN: Category : Rate of return Languages : en Pages : 66
Book Description
We propose a production-based general equilibrium model to study the link between timing of cash flows and expected returns both in the cross section of stocks and along the aggregate equity term structure. Our model incorporates long-run growth news with time-varying volatility and slow learning about the exposure that firms have with respect to these shocks. Our framework provides a unified explanation of the stylized features of the slope of the term structure of equity returns, its variations over the business cycle, and the negative relationship between cash-flow duration and expected returns in the cross section of book- to-market-sorted portfolios.
Author: Hengjie Ai Publisher: ISBN: Category : Rate of return Languages : en Pages : 66
Book Description
We propose a production-based general equilibrium model to study the link between timing of cash flows and expected returns both in the cross section of stocks and along the aggregate equity term structure. Our model incorporates long-run growth news with time-varying volatility and slow learning about the exposure that firms have with respect to these shocks. Our framework provides a unified explanation of the stylized features of the slope of the term structure of equity returns, its variations over the business cycle, and the negative relationship between cash-flow duration and expected returns in the cross section of book- to-market-sorted portfolios.
Author: Mariano (Max) Massimiliano Croce Publisher: ISBN: Category : Languages : en Pages : 42
Book Description
We study the link between timing of cash flows and expected returns in general equilibrium production economies. Our model incorporates (i) heterogenous exposure to aggregate pro- ductivity shocks across capital vintages, and (ii) an endogenous stock of growth options. Our economy features a V-shaped term structure of aggregate dividends in which dividend yields decrease with maturity up to ten years, consistent with the empirical findings of Binsbergen et al. (2012a). Our model also reproduces the empirical negative relationship between cash-flow duration and expected returns in the cross section of book-to-market sorted stocks.
Author: Layne David Kirshon Publisher: ISBN: Category : Languages : en Pages : 175
Book Description
This dissertation contains three essays on the term structure of equity returns. In the first chapter I document substantial variation in the cross-section of the term premium of US stocks between 1996 and 2019. I introduce a model with multiple stocks and an SDF with two priced sources of risk – dividend volatility risk and discount rate risk – which generates an economy with both upward and downward sloping equity term structures. The model creates two hypotheses: (1) dividend strips of stocks with more volatile dividends should earn higher returns, and (2) controlling for dividend volatility, cash flow duration should increase a stock’s term premium. I use the Fama-French factors to empirically validate the model, with factor regressions explaining the majority of variation in term premia. The second chapter studies the relationship between the low volatility anomaly and the equity term structure. I show that dividend strip returns are positively related to measures of risk and volatility, while term premium returns are negatively related to risk and volatility. This generates a puzzle for explanations of the low volatility anomaly based on general preference for volatility, such as leverage constraints, that cannot distinguish across the term structure. The results support market specific explanations such as behavioral models of utility over realized gains (as opposed to unrealized paper gains) from investments. The third chapter studies the effect of buybacks on the equity term premium. First, I show that firms that conduct a buyback for the first time see an immediate drop in the returns to their dividend strips (due to unfulfilled dividend expectations), and a concurrent increase in their term premia. This confirms that buybacks do indeed substitute for dividends. Second, I show that firms that have repurchased shares earn a “buyback premium” due to the fact that cash flows may be returned as repurchases instead of dividends.
Author: Jules H. van Binsbergen Publisher: ISBN: Category : Rate of return Languages : en Pages : 37
Book Description
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.
Author: John Y. Campbell Publisher: ISBN: Category : Capital assets pricing model Languages : en Pages : 66
Book Description
It is well known that in the postwar period stockreturns have tended to be low when the short term nominal interest rate is high. In this paper I show that more generally the state of the term structure of interest rates predicts stock returns. Risk premia on stocks appear to move closely together with those on 20-year Treasury bonds, while risk premia on Treasury bills move somewhat independently. Average returns on 20-year bonds have been very low relative to average returns on stocks. I use these observations to test some simple asset pricing models. First I consider latent variable models in which betas are constant and risk premia vary with expected returns on a small number of unobservable hedge portfolios. The data strongly reject a single-latent-variable model. The last part of the paper examines the relationship between conditional means and variances of returns on bills, bonds and stocks. Bill returns tend to be high when their conditional variance is high, but there is a perverse negative relationship between stock returns and their conditional variance. A model is estimated which assumes that asset returns are determined by their time-varying betas with a fixed-weight "benchmark" portfolio of bills, bonds and stocks, whose return is proportional to its conditional variance. This portfolio is estimated to place almost all its weight on bills, indicating that uncertainty about nominal interest rates is important in pricing both short- and long-term assets
Author: Ming Zeng Publisher: ISBN: Category : Bonds Languages : en Pages : 18
Book Description
Recent findings on the term structure of equity and bond yields pose serious challenges to existing models of equilibrium asset pricing. This paper presents a new equilibrium model of subjective expectations to explain the joint historical dynamics of equity and bond yields (and their yield spreads). The movements of equity and bond yields are driven mainly by subjective expectations of dividend and gross domestic product (GDP) growth. Yields on short-term dividend claims are more volatile because the expected short-term dividend growth meanreverts to its less volatile long-run counterpart. The procyclical slope of equity yields is due to the countercyclical slope of dividend growth expectations. The correlation between equity returns/yields and nominal bond returns/yields switched from positive to negative after the late 1990s, owing mainly to a stronger correlation between expectations of real GDP growth and real dividend growth and only partially to procyclical inflation. Dividend strip returns are predictable, and the predictive power decreases with maturity as a result of predictable forecast errors and revisions. The model is also consistent with the data in generating persistent and volatile price-dividend ratios and excess return volatility.
Author: Stefano Giglio Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
We use a large cross-section of equity returns to estimate a rich affine model of equity prices, dividends, returns and their dynamics. Using the model, we price dividend strips of the aggregate market index, as well as any other well-diversified equity portfolio. We do not use any dividend strips data in the estimation of the model; however, model-implied equity yields generated by the model match closely the equity yields from the traded dividend forwards reported in the literature. Our model can be used to extend the data on the term structure of aggregate (market) discount rates over time (back to the 1970s) and across maturities, since we are not limited by the maturities of actually traded dividend claims. Most importantly, the model generates term structures for any portfolio of stocks (e.g., small and value portfolios, high and low investment portfolios, etc). The novel cross-section of term structure data estimated by our model, covering a span of 45 years that includes several recessions, represents a rich set of new empirical moments that can be used to guide and evaluate asset pricing models, beyond the aggregate term structure of dividend strips that has been studied in the literature.
Author: Matthew Lyle Publisher: ISBN: Category : Languages : en Pages : 48
Book Description
We provide a tractable stock valuation model to study the dynamics of firm-level expected returns and their valuation impact using two firm fundamentals: book-to-market ratio and ROE. Applying the model to the cross-section of firms, we find that expected returns and expected profitability are highly persistent and time varying. Our fundamentals-implied estimates of expected returns across time horizons exhibit strong return predictability up to three years ahead and produce an aggregate equity term structure that tracks economic conditions. The implied term structure is upward sloping during normal or expansion periods but flattens or inverts during economic downturns or times of high uncertainty. Finally, we show that ignoring the dynamics of expected returns can produce large valuation errors.
Author: Hengjie Ai
Author: Hengjie Ai
Author: Mariano (Max) Massimiliano Croce
Author: Layne David Kirshon
Author: Jules H. van Binsbergen
Author: John Y. Campbell
Author: Ming Zeng
Author: Stefano Giglio
Author: John H. Cochrane
Author: Matthew Lyle
Author: