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    The term structure of equity yields - a bottom-up approach

    Schroeder, David (2023) The term structure of equity yields - a bottom-up approach. Review of Finance , ISSN 1572-3097.

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    This paper proposes a novel perspective on the term structure of market equity yields. Instead of using market dividend futures, we aggregate equity yields of individual firms to estimate the market equity yield curve. This approach allows studying the aggregation effect that shapes the market equity yield curve. During the period from 1990 to 2019, we find a positive aggregation effect: companies with high equity yields were expected to grow at higher rates than companies with low equity yields. Thus, high-yield companies were expected to generate an increasing share of total market dividends when expanding the investment time horizon. Under the assumption of flat firm risk premia, this implies an upward-sloping term structure of equity risk premia. Together with the concave bond yield curve, the market equity yield curve was upward-sloping.


    Item Type: Article
    School: Birkbeck Faculties and Schools > Faculty of Business and Law > Birkbeck Business School
    Depositing User: David Schroeder
    Date Deposited: 10 Oct 2023 13:35
    Last Modified: 26 Oct 2023 00:54


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