Equity Yields

We study a new data set of prices of traded dividends with maturities up to 10 years across three world regions: the US, Europe, and Japan. We use these asset prices to construct equity yields, analogous to bond yields. We decompose these yields to obtain a term structure of expected dividend growth rates and a term structure of risk premia, which allows us to decompose the equity risk premium by maturity. We find that both expected dividend growth rates and risk premia exhibit substantial variation over time, particularly for short maturities. In addition to predicting dividend growth, equity yields help predict other measures of economic growth such as consumption growth. We relate the dynamics of growth expectations to recent events such as the financial crisis and the earthquake in Japan.

Equity Yields

We study a new data set of dividend futures with maturities up to ten years across three world regions: the US, Europe, and Japan. We use these asset prices to construct equity yields, analogous to bond yields. We decompose the equity yields to obtain a term structure of expected dividend growth rates and a term structure of risk premia, which decomposes the equity risk premium by maturity. We find that the slope of the term structure of risk premia is pro-cyclical, whereas the slope of the term structure of expected dividend growth rates is counter-cyclical. The comovement of yields across regions is, on average, higher for long-maturity yields than for short-maturity yields, whereas the variation in this comovement is much higher for short-maturity yields

APG Asset Management

We use a new data set on dividend futures with maturities up to 10 years to uncover expected dividend growth rates across three major regions around the world: the US, Europe, and Japan. We use these futures to derive equity yields, analogous to bond yields, and decompose these yields into expected growth rates of dividends and a risk premium component. We find that both risk premia as well as expected growth rates exhibit substantial variation over time. Further, we find that equity yields are important leading indicators of economic growth as measured by GDP growth, consumption growth, and dividend growth, particularly in periods when nominal bond yields are near the zero lower bound. We relate the dynamics of growth expectations to recent events related to the financial crisis and the recent turmoil following the earthquake in Japan