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dc.descriptionIn this note, we outline a present-value modelling approach for estimating term structures of expected dividend growth and risk premiums in equity markets. We apply our methodology to equity markets in the US, euro area, Japan and UK.en_US
dc.description.abstractWe outline a methodology for estimating term structures of expected dividend growth and risk premiums, which we apply to equity markets in the US, euro area, Japan, and the UK. These term structures are key inputs when estimating expected returns on the market and decomposing equity price movements. Our estimation approach relies on the use of dividend futures prices, which provide a way to breakdown the market into value associated with fixed horizons. We combine these futures prices with stock index prices, options data, and surveys within a present-value framework, allowing us to estimate term structures that extend to long maturities. Our model produces dividend growth and risk premium term structures that explain high proportions of the variation in stock index prices, and closely match dividend futures prices. There is considerable cyclical variation in the expected dividend growth estimates, particularly at shorter horizons. Similarly, short-term risk premiums vary considerably more than long-horizon estimates, and increase sharply during market downturns. The present-value approach allows us to decompose stock market values by horizon, and indicates that the majority of the value occurs beyond ten years for all markets. This is also reflected in estimates of equity market duration, which range from 20 to 25 years for the US and Japan, and 15 to 20 years for the euro area and UK.en_US
dc.publisherNorges Bank Investment Managementen_US
dc.relation.ispartofseriesDiscussion Note;3/2021
dc.rightsAttribution-NonCommercial-NoDerivatives 4.0 Internasjonal*
dc.titleModelling equity market term structuresen_US
dc.title.alternativeModellering av terminstrukturer i aksjemarkedeten_US
dc.subject.nsiVDP::Samfunnsvitenskap: 200::Økonomi: 210::Samfunnsøkonomi: 212en_US

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Attribution-NonCommercial-NoDerivatives 4.0 Internasjonal
Except where otherwise noted, this item's license is described as Attribution-NonCommercial-NoDerivatives 4.0 Internasjonal