Disaster recovery and the term structure of dividend strips?

Michael Hasler and Roberto Marfè
Authors registered in the RePEc Author Service: Roberto Marfe ()

No 458, Carlo Alberto Notebooks from Collegio Carlo Alberto

Abstract: Recent empirical findings document downward-sloping term structures of equity return volatility and risk premia. An equilibrium model with rare disasters followed by recoveries helps recon- cile theory with empirical observations. Indeed, recoveries outweigh the upward-sloping effect of time-varying disaster intensity and expected growth, generating downward-sloping term structures of dividend growth risk, equity return volatility, and equity risk premia. In addition, the term structure of interest rates is upward-sloping when accounting for recoveries and downward-sloping otherwise. The model quantitatively reconciles high risk premia and a low risk-free rate with the shape of the term structures, which are at odds in other models.

Keywords: Recovery; Rare disasters; Term structures of equity; Dividend strips; Asset pricing puzzles (search for similar items in EconPapers)
JEL-codes: D51 D53 E21 G12 G13 (search for similar items in EconPapers)
Pages: pages 61
Date: 2016
New Economics Papers: this item is included in nep-mac and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

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Related works:
Journal Article: Disaster recovery and the term structure of dividend strips (2016)
Working Paper: Disaster Recovery and the Term Structure of Dividend Strips (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:cca:wpaper:458

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