The dividend term structure

Research output: Contribution to journalArticleScientificpeer-review

Abstract

We estimate a model for the term structure of discounted risk-adjusted dividend growth using prices of dividend futures for the Eurostoxx 50. A two-factor model capturing short-term mean reversion within a year and a medium-term component reverting at business-cycle horizon gives an excellent t of these prices. Hence, investors update the valuation of dividends beyond the business cycle only to a limited degree. The two-factor model, estimated on dividend futures data only, explains a large part of observed daily stock market returns. We also show that the two latent factors are related to various economic andfinancial variables.
Original languageEnglish
JournalJournal of Financial and Quantitative Analysis
DOIs
Publication statusE-pub ahead of print - May 2019

Fingerprint

Dividends
Term structure
Business cycles
Economic variables
Investors
Stock market returns
Latent factors
Mean reversion

Keywords

  • dividend futures
  • dividend swaps
  • dividend derivatives
  • term structure
  • state space model

Cite this

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title = "The dividend term structure",
abstract = "We estimate a model for the term structure of discounted risk-adjusted dividend growth using prices of dividend futures for the Eurostoxx 50. A two-factor model capturing short-term mean reversion within a year and a medium-term component reverting at business-cycle horizon gives an excellent t of these prices. Hence, investors update the valuation of dividends beyond the business cycle only to a limited degree. The two-factor model, estimated on dividend futures data only, explains a large part of observed daily stock market returns. We also show that the two latent factors are related to various economic andfinancial variables.",
keywords = "dividend futures, dividend swaps, dividend derivatives, term structure, state space model",
author = "Jac Kragt and {de Jong}, Frank and Joost Driessen",
year = "2019",
month = "5",
doi = "10.1017/S002210901900036X",
language = "English",
journal = "Journal of Financial and Quantitative Analysis",
issn = "0022-1090",
publisher = "Cambridge University Press",

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The dividend term structure. / Kragt, Jac; de Jong, Frank; Driessen, Joost.

In: Journal of Financial and Quantitative Analysis, 05.2019.

Research output: Contribution to journalArticleScientificpeer-review

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N2 - We estimate a model for the term structure of discounted risk-adjusted dividend growth using prices of dividend futures for the Eurostoxx 50. A two-factor model capturing short-term mean reversion within a year and a medium-term component reverting at business-cycle horizon gives an excellent t of these prices. Hence, investors update the valuation of dividends beyond the business cycle only to a limited degree. The two-factor model, estimated on dividend futures data only, explains a large part of observed daily stock market returns. We also show that the two latent factors are related to various economic andfinancial variables.

AB - We estimate a model for the term structure of discounted risk-adjusted dividend growth using prices of dividend futures for the Eurostoxx 50. A two-factor model capturing short-term mean reversion within a year and a medium-term component reverting at business-cycle horizon gives an excellent t of these prices. Hence, investors update the valuation of dividends beyond the business cycle only to a limited degree. The two-factor model, estimated on dividend futures data only, explains a large part of observed daily stock market returns. We also show that the two latent factors are related to various economic andfinancial variables.

KW - dividend futures

KW - dividend swaps

KW - dividend derivatives

KW - term structure

KW - state space model

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DO - 10.1017/S002210901900036X

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