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Discussion Paper Details

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Title: The Term Structure of Returns: Facts and Theory

Author(s): Ralph Koijen and Jules H. van Binsbergen

Publication Date: May 2015

Keyword(s): corporate bonds, equity, fixed income, term structure and volatility

Programme Area(s): Financial Economics

Abstract: 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.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=10633

Bibliographic Reference

Koijen, R and van Binsbergen, J. 2015. 'The Term Structure of Returns: Facts and Theory'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=10633