Corporate Fraction and the Equilibrium Term-Structure of Equity Risk

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

No 409, Carlo Alberto Notebooks from Collegio Carlo Alberto

Abstract: The recent empirical evidence of a downward sloping term structure of equity risk is viewed as a challenge to many leading asset pricing models. This paper analytically characterizes conditions under which a continuous-time long-run risk model can accommodate the stylized facts about dividend and equity risk, when dividends are a stationary stochastic fraction of aggregate consumption. Such a cointegrating relation makes dividends riskier in the short-run than at medium horizons but also preserves the role of long-run risk: consequently, the model captures both the traditional puzzles, like the high equity premium, as well as the new evidence about the term structure of equity risk.

JEL-codes: C62 D51 D53 G12 G13 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2015
New Economics Papers: this item is included in nep-cfn, nep-rmg and nep-upt
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Corporate Fraction and the Equilibrium Term Structure of Equity Risk (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:cca:wpaper:409

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