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Dynamic Equity Slope

Author

Listed:
  • Matthijs Breugem
  • Stefano Colonnello
  • Roberto Marfe
  • Francesca Zucchi
Abstract
This paper empirically documents that expected growth volatility is a key driver of the equity term structure dynamics. A general equilibrium model jointly explains four important patterns: (i) a potentially negative unconditional equity term premium, (ii) countercyclical equity term premia, (iii) procyclical equity yields, and (iv) premia to value and growth claims respectively increasing and at with the horizon. The eco- nomic mechanism hinges on the interaction between heteroscedastic long-run growth| which leads to countercyclical risk premia|and homoscedastic short-term shocks under limited market participation|which produce sizable risk premia to short-term cash ows. The equity slope dynamics hold irrespective of the sign of its unconditional average.

Suggested Citation

  • Matthijs Breugem & Stefano Colonnello & Roberto Marfe & Francesca Zucchi, 2024. "Dynamic Equity Slope," Carlo Alberto Notebooks 713 JEL Classification: D, Collegio Carlo Alberto.
    • Handle: RePEc:cca:wpaper:713
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    References listed on IDEAS

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    1. Matthijs Breugem & Roberto Marfè & Francesca Zucchi, 2020. "Corporate Policies and the Term Structure of Risk," Carlo Alberto Notebooks 627, Collegio Carlo Alberto.

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    More about this item

    Keywords

    Term Structure of Equity; Price Dynamics; General Equilibrium; Ex-pected Growth Volatility;
    All these keywords.

    JEL classification:

    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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