Disaster Recovery and the Term Structure of Dividend Strips

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

No 410, Carlo Alberto Notebooks from Collegio Carlo Alberto

Abstract: Recent empirical findings document downward-sloping term-structures of equity volatil- ity and risk premia. An equilibrium model with rare disasters followed by recovery helps reconcile theory with empirical observations. While previous models focus on frequency and size of disasters, we show that recovery from disasters, a feature of the data, is at least as important. Indeed, recoveries outweigh the upward-sloping effect of time-varying disaster intensity, generating downward-sloping term-structures of div- idend risk, equity risk, and equity risk premia. The model quantitatively reconciles a high equity premium and a low risk-free rate with downward-sloping term-structures, which are at odds in standard frameworks.

Keywords: dividend strips; recoveries; term-structure of risk and return; time-varying rare disasters (search for similar items in EconPapers)
JEL-codes: D51 E21 G12 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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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? (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:cca:wpaper:410

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