Income Insurance and the Equilibrium Term-Structure of Equity

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

No 407, Carlo Alberto Notebooks from Collegio Carlo Alberto

Abstract: This paper documents that GDP, wages and dividends are co-integrated but feature term-structures of risk respectively flat, increasing and decreasing. Income insurance within the firm from shareholders to workers explains those term-structures: distributional risk smooths wages and enhances the short-run risk of dividends. A simple general equilibrium model, where labor rigidity affects dividend dynamics and the price of short-run risk, reconciles standard asset pricing facts with the term-structures of equity premium and volatility and those of macroeconomic variables, at odds in leading models. Income insurance also helps to explain dividend growth predictability, cross-sectional value premia, counter-cyclical Sharpe-ratios, and interest rates term-premia.

Keywords: term structure of equity; income insurance; dividend strips; distributional risk; equilibrium asset pricing (search for similar items in EconPapers)
JEL-codes: D53 E24 E32 G12 (search for similar items in EconPapers)
Pages: 77 pages
Date: 2015
New Economics Papers: this item is included in nep-dge, nep-ias and nep-mac
References: View references in EconPapers View complete reference list from CitEc
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https://www.carloalberto.org/wp-content/uploads/2018/11/no.407.pdf (application/pdf)

Related works:
Journal Article: Income Insurance and the Equilibrium Term Structure of Equity (2017)
Working Paper: Income Insurance and the Equilibrium Term-Structure of Equity (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:cca:wpaper:407

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