Equity yields

Deconstructing the Yield Curve

“…Lemma 1 shows that when ρ is in the vicinity of one (i.e., the short rate is very persistent), the loadings on the principal components for forwards are fully predetermined perturbations of sine functions. 2 As discussed in the Introduction, bond yields are very persistent and, in practice, ρ is estimated to be in the neighborhood of one. The loadings on the first three principal components are constant, linear and quadratic polynomials corresponding to the level, slope and curvature effects.…”

“…To illustrate this, we use data for the seasonal cycle of the global surface temperature (measured as deviations from annual mean in Celsius) for the period 1880-2017. 2 The data is plotted in the top graph of Figure 4 where the average deviations for January to December for each year in the sample are represented by a line. The estimated loadings are in the bottom graph of Figure 4.…”

Equilibrium Predictability, Term Structure of Equity Premia, and Other Return Characteristics

“…Boguth, et al (2012) construct dividend strips from highly levered long and short positions in futures contracts, and show that small pricing frictions in the futures market can produce, among many things, a downward sloping term structure of equity premium. Binsbergen, et al (2013) look at dividend trades directly from dividend futures market and confirm the same downward sloping term-structure for risk premium.…”

“…Secondly, starting around 2000 there is an over-the-counter market to trade dividend derivatives directly. Binsbergen et al (2013) study the pricing behavior in this dividend futures market.…”

Dividend Dynamics, Learning, and Expected Stock Index Returns

“…This not only addresses the Goyal and Welch (2008) critique and significantly revises upward the degree of return predictability relative to the existing literature, but also lends support to the view that both investors' aversion to long-run risks and their learning about these risks play important roles in determining asset prices and expected returns. 3,4 To study the effect of learning about dividend dynamics on stock index prices and expected returns, we first need a dividend model that is able to realistically and Koijen (2010), Chen, Da, and Zhao (2013), Kelly and Pruitt (2013), van Binsbergen et al (2013), Li, Ng, and Swaminathan (2013), Da, Jagannathan, and Shen (2014), and Martin (2017). 2 Instead of learning, an alternative approach that researchers have used is to introduce preference shocks.…”