Download or read book The Term Structure of Equity Risk Premia written by Ravi Bansal and published by . This book was released on 2019 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Term Structure s of the Equity Risk Premium written by Leandro Gomes and published by . This book was released on 2019 with total page 91 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book The Equity Risk Premium and the Term Structure written by Jacob Boudoukh and published by . This book was released on 1992 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Equity Risk Premium written by William N. Goetzmann and published by Oxford University Press. This book was released on 2006-11-16 with total page 568 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book The Term Structure of Risk Premia with Heterogeneous Recursive Preferences and Beliefs written by Edward Golosov and published by . This book was released on 2018 with total page 92 pages. Available in PDF, EPUB and Kindle. Book excerpt: I investigate the effect of preference and belief heterogeneity on the term structure of risk premia in a continuous-time time economy with Epstein-Zin-Weil preferences. The slope of the term structure of equity risk premia is driven by heterogeneity in the agents' own prices of risk and the sensitivity of the equity market valuation to the changes in economic conditions. As a result, the slope can switch its sign in response to a significant shock to the aggregate consumption. Significant negative shocks shift the consumption and wealth toward the more "pessimistic" agent i.e. the agent with a higher risk aversion or more pessimistic beliefs. As a result, the equity market valuation changes from being pro-cyclical to counter-cyclical, which inverts the term structure. Thus, the model can generate a switch in the sign of the slope of the term structure of the dividend strip risk premia after the 2008-2009 global financial crisis, a result consistent with recent empirical studies and my own calibration based on a proprietary dataset of dividend swap prices.
Download or read book The Term Structure of Equity and Variance Risk Premia written by Loriano Mancini and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Handbook of the Equity Risk Premium written by Rajnish Mehra and published by Elsevier. This book was released on 2011-08-11 with total page 635 pages. Available in PDF, EPUB and Kindle. Book excerpt: Edited by Rajnish Mehra, this volume focuses on the equity risk premium puzzle, a term coined by Mehra and Prescott in 1985 which encompasses a number of empirical regularities in the prices of capital assets that are at odds with the predictions of standard economic theory.
Download or read book The Equity Risk Premium A Contextual Literature Review written by Laurence B. Siegel and published by CFA Institute Research Foundation. This book was released on 2017-12-08 with total page 69 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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%.
Download or read book Investor Information Long Run Risk and the Term Structure of Equity written by Mariano M. Croce and published by . This book was released on 2007 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book The Equity Risk Premium written by Bradford Cornell and published by John Wiley & Sons. This book was released on 1999-05-26 with total page 248 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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)
Download or read book Investor Information Long Run Risk and the Term Structure of Equity written by Mariano (Max) Massimiliano Croce and published by . This book was released on 2012 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Macroeconomic Risk Revisited written by Edward Golosov and published by . This book was released on 2017 with total page 63 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Term Structure of Variance Risk Premium and Returns Predictability written by Giacomo Bormetti and published by . This book was released on 2016 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Dividend Risk and the Cross Section of Equity Risk Premia written by Antonio Picca and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: I study a novel data set of short-term dividend futures contracts for individual stocks. I combine this data with dividend forecasts from equity research analysts to construct a model-free measure of short-term equity risk premia. I provide the first description of the cross-section of risk premia on short-maturity dividend claims. My data on risk premia for cash flows at a specific horizon (one to two years) provide a more tractable setting for understanding the differences in asset pricing across firms compared to standard equity returns, which mixes risk premia for cash flows at infinitely many maturities. The first empirical fact that emerges is a strong positive association between dividend risk and risk premia for short maturity claims. This contrasts with well-known "low risk" anomalies for standard equity. Specifically, I find that firms with high dividend volatility have (i) higher risk premia, (ii) a strongly pro-cyclical slope in their term structure of risk premia, and (iii) an inverse risk-return relation in realized stock returns. Lastly, I develop an asset-pricing model with heterogeneity in dividend volatility and time-varying market price of risk that explains my empirical results.
Download or read book Financial Markets and the Real Economy written by John H. Cochrane and published by Now Publishers Inc. This book was released on 2005 with total page 117 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial Markets and the Real Economy reviews the current academic literature on the macroeconomics of finance.
Download or read book The Team Structure of Equity Risk Premia written by Ravi Bansal and published by . This book was released on 2019 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Equity Risk Premium and the Risks of Equity Investing written by Stuart Doole and published by . This book was released on 2007 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt: The equity risk premium arises from the link between equities as an asset, and corporate profitability and growth. In this paper, we review the concept and measurement of the equity risk premium against a background of recent practitioner debate concerning the suitability of equities for long-term institutional investors. We consider the competing versions of the equity risk premium that are quoted by academics and practitioners, highlight issues of estimation and consider how they can be addressed robustly.We conclude that equities as an asset class offer a robust return premium over long-dated bonds of the order of 2.5% to 3% per annum globally. This is an estimate which adjusts for the experienced changes in market valuations, and is based on detailed empirical analysis of many equity markets over more than 100 years. Diversified exposure to a basket of global equity markets is most likely to deliver this estimated risk premium over time, rather than a concentrated single-country portfolio.Against the same background, we also revisit the debate over time-diversification i.e. the term-structure of the volatility of asset classes with investment horizon. We conclude that the mean-reversion in equity market valuations drives that of equity returns and this mean-reversion directly ensures that the volatility of equities decreases with longer investor time horizons. Hence, in practice, the 'shortfall' risk of equities is less serious than often thought by investors and especially compared with other assets such as bonds when investing for the long-term i.e. over full business or economic cycles.
