The Term Structure of the Equity Risk Premium

Authors

Bryan Seegmiller, Brigham Young University
Brian Boyer, Brigham Young University

Keywords

term structure, equity risk premium, market microstructures

College

Marriott School of Business

Department

Finance

Abstract

A recent paper by Binsbergen, Brandt, and Koijen (2012)ⁱ examined the equity risk-premium on short- versus long-term dividend claims, providing evidence that the large size of the overall equity risk premium was due mostly to the even higher risk-premium earned on short-term dividends. The implication is that the equity risk premium slopes downward across the term structure. These findings are of note because they constitute an anomaly in the literature, as nearly all asset pricing models—such as Campbell and Cochrane (1999)ⁱⁱ—predict an upward-sloping or flat term structure. Some, such as Belo, Collin-Dufresne, and Goldstein (2015)ⁱⁱⁱ, have sought to develop new asset pricing models to reflect this anomaly. Others, such as Boguth, Carlson, Fisher, and Simutin (2012)^iv, have disputed the result, showing that the unexpected findings of Binsbergen, et al. could be explained by the presence of small frictions in financial market microstructures.

Recommended Citation

Seegmiller, Bryan and Boyer, Brian (2017) "The Term Structure of the Equity Risk Premium," Journal of Undergraduate Research: Vol. 2017: Iss. 1, Article 253.
Available at: https://scholarsarchive.byu.edu/jur/vol2017/iss1/253