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The Dividend Term Structure

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  • Kragt, Jac
  • de Jong, Frank
  • Driessen, Joost

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 2-factor model capturing short-term mean reversion within a year and a medium-term component reverting at the business-cycle horizon gives an excellent fit of these prices. Hence, investors update the valuation of dividends beyond the business cycle only to a limited degree. The 2-factor model, estimated on dividend futures data only, explains a large part of observed daily stock market returns. We also show that the 2 latent factors are related to various economic and financial variables.

Suggested Citation

  • Kragt, Jac & de Jong, Frank & Driessen, Joost, 2020. "The Dividend Term Structure," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 55(3), pages 829-867, May.
    • Handle: RePEc:cup:jfinqa:v:55:y:2020:i:3:p:829-867_4
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    Cited by:

    1. Aşty Al-Jaaf, 2022. "Dividend predictability and higher moment risk premia," Journal of Asset Management, Palgrave Macmillan, vol. 23(2), pages 83-99, March.
    2. Yin, Libo & Nie, Jing, 2021. "Adjusted dividend-price ratios and stock return predictability: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 73(C).
    3. Damir Filipović & Sander Willems, 2020. "A term structure model for dividends and interest rates," Mathematical Finance, Wiley Blackwell, vol. 30(4), pages 1461-1496, October.
    4. Quaye, Enoch & Tunaru, Radu, 2022. "The stock implied volatility and the implied dividend volatility," Journal of Economic Dynamics and Control, Elsevier, vol. 134(C).
    5. Ye Li & Chen Wang, 2023. "Valuation Duration of the Stock Market," Papers 2310.07110, arXiv.org.

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