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Equity Yields

Ralph S. J. Koijen, Chicago

5th Aug 2011  11:30 am - 12:30 pm Room 214/215 H69

We study a new data set of prices of traded dividends with maturities up to 10 years across three world regions: the US, Europe and Japan. We use these asset prices to derive equity yields, analogous to bond yields, and decompose these yields into expected dividend growth rates and a risk premium component. We find that both dividend growth rates and the risk premium component exhibit substantial variation over time. Further, equity yields may help predict other measures of economic growth such as consumption growth. We relate the dynamics of growth expectations to recent events such as the financial crisis and the earthquake in Japan.