Working paper
The Response of Equity Yields to a Long-Run Shock
SSRN
05/11/2023
DOI: 10.2139/ssrn.4432167
Abstract
We study how short- and long-term equity claims respond to news about long-term economic growth and analyze the relative contribution of cash flows and discount rates to this response. To this end, we add the equity yields from Giglio, Kelly, and Kozak (2020) to a standard structural macro-VAR that identifies long-run technology shocks. We find that a positive long-run shock increases the slope of the equity yield curve. This impact is due to an increase in expected dividend growth that is especially large for short-term equity claims. Discount rates for all maturities are largely unresponsive to the shock. We also document significant cross-sectional variation in the response of value and growth firms. These new moments pose a challenge to the benchmark equity term-structure models.
Details
- Title: Subtitle
- The Response of Equity Yields to a Long-Run Shock
- Creators
- Martijn Boons - Tilburg UniversityPetra Sinagl - University of IowaAndrea Tamoni - Rutgers, The State University of New Jersey
- Resource Type
- Working paper
- Publisher
- SSRN
- DOI
- 10.2139/ssrn.4432167
- Number of pages
- 70 pages
- Language
- English
- Date posted
- 05/11/2023
- Date updated
- 01/17/2024
- Academic Unit
- Finance
- Record Identifier
- 9984414060002771
Metrics
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