The Dividend Term Structure

Research output: Working paperOther research output

Abstract

Dividend derivatives contain information about the expectations that investors have of stock dividends. We employ a state space model to estimate a term structure of discounted risk adjusted dividend growth enclosed in dividend derivative prices. A two state model of the term structure capturing short term mean reversion within a year and a medium term component which reverts at business cycle horizon to a long term constant is superior over a model restricted to a single state variable. The dividend term structure extrapolates to an implied price dividend ratio. This model estimate combined with current dividends captures most of the daily return variation of both the Eurostoxx 50 and the Nikkei 225 indices, despite mean reversion to constant long run growth being reasonably quick. Hence, investors update their valuation of dividends beyond the business cycle horizon only to a limited degree.
Original languageEnglish
Place of PublicationTilburg
PublisherNETSPAR
Number of pages54
DOIs
Publication statusPublished - Apr 2015

Publication series

NameNetspar Discussion Paper
Volume11/2014-055

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Dividends
Term structure
Derivatives
Investors
Business cycles
Mean reversion
State-space model
Long-run growth
Stock dividends
State variable

Cite this

Kragt, J., de Jong, F., & Driessen, J. (2015). The Dividend Term Structure. (Netspar Discussion Paper; Vol. 11/2014-055). Tilburg: NETSPAR. https://doi.org/10.2139/ssrn.2542578
Kragt, Jac ; de Jong, Frank ; Driessen, Joost. / The Dividend Term Structure. Tilburg : NETSPAR, 2015. (Netspar Discussion Paper).
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Kragt, J, de Jong, F & Driessen, J 2015 'The Dividend Term Structure' Netspar Discussion Paper, vol. 11/2014-055, NETSPAR, Tilburg. https://doi.org/10.2139/ssrn.2542578

The Dividend Term Structure. / Kragt, Jac; de Jong, Frank; Driessen, Joost.

Tilburg : NETSPAR, 2015. (Netspar Discussion Paper; Vol. 11/2014-055).

Research output: Working paperOther research output

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