Date of this Version
American Economic Review
We present evidence on the term structure of the equity premium. We recover prices of dividend strips, which are short-term assets that pay dividends on the stock index every period up to period T and nothing thereafter. It is short-term relative to the index because the index pays dividends in perpetuity. We find that expected returns, Sharpe ratios, and volatilities on short-term assets are higher than on the index, while their CAPM betas are below one. Short-term assets are more volatile than their realizations, leading to excess volatility and return predictability. Our findings are inconsistent with many leading theories.
Copyright © 2012 by the American Economic Association.van Binsbergen, Jules, Michael Brandt, and Ralph Koijen. 2012. "On the Timing and Pricing of Dividends." American Economic Review, 102(4): 1596-1618.
Binsbergen, J. v., Brandt, M. W., & Koijen, R. (2012). On the Timing and Pricing of Dividends. American Economic Review, 102 (4), 1596-1618. http://dx.doi.org/10.1257/aer.102.4.1596
Date Posted: 27 November 2017
This document has been peer reviewed.