VGSF - WU Vienna - LC

Jules van Binsbergen, Wharton, University of Pennsylvania

online via Microsoft Teams Live Events 17:30 - 18:30

Organizer VGSF

As part of the ser­ies of the "Fin­ance Re­search Sem­inar", VGSF wel­comes Ju­les van Bins­ber­gen from Whar­ton, Uni­versity of Pennsylvania to present his re­search pa­per.
Per­sonal Webpage

Pa­per

Dur­a­tion-­Based Stock Valu­ation

In­terest rates of all ma­tur­it­ies have dropped to all-­time low levels around the world. These un­ex­pec­ted shocks to dis­count rates have an im­port­ant ef­fect on the valu­ation of long dur­a­tion as­sets. To quan­tify this ef­fect, I con­struct a num­ber of coun­ter­fac­tual fixed in­come port­fo­lios that match the dur­a­tion of the di­vidend strips of the ag­greg­ate stock mar­ket. I show that such fixed in­come port­fo­lios have per­formed as well, if not bet­ter, than the U.S. stock mar­ket in the past several dec­ades, while ex­hib­it­ing sim­ilar levels of volat­il­ity. In­vestors have there­fore re­ceived little to no com­pens­a­tion for tak­ing long dur­a­tion nom­inal di­vidend risk in the past half cen­tury. I dis­cuss several ex­plan­a­tions, in­clud­ing a sec­u­lar trend in eco­nomic growth, di­vidends' po­ten­tial to hedge against in­fla­tion, as well as the di­ver­si­fic­a­tion of di­vidend risk across ma­tur­it­ies. These res­ults also have im­port­ant im­plic­a­tions for the cross-sec­tion of stock re­turns.



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