The Term Structure of Returns

The Term Structure of Returns
Author: Jules H. van Binsbergen
Publisher:
Total Pages: 37
Release: 2015
Genre: Rate of return
ISBN:

We summarize and extend the new literature on the term structure of equity. Short-term equity claims, or dividend strips, have on average significantly higher returns than the aggregate stock market. The returns on short-term dividend claims are risky as measured by volatility, but safe as measured by market beta. These facts are hard to reconcile with traditional macro-finance models and we provide an overview of new models that can reproduce some of these facts. We relate our evidence on dividend strips to facts about other asset classes such as nominal and corporate bonds, volatility, and housing. We conclude by discussing the broader economic implications by linking the term structure of returns to real economic decisions such as hiring and investment.

Stock Returns and the Term Structure

Stock Returns and the Term Structure
Author: John Y. Campbell
Publisher:
Total Pages: 66
Release: 1985
Genre: Capital assets pricing model
ISBN:

It is well known that in the postwar period stockreturns have tended to be low when the short term nominal interest rate is high. In this paper I show that more generally the state of the term structure of interest rates predicts stock returns. Risk premia on stocks appear to move closely together with those on 20-year Treasury bonds, while risk premia on Treasury bills move somewhat independently. Average returns on 20-year bonds have been very low relative to average returns on stocks. I use these observations to test some simple asset pricing models. First I consider latent variable models in which betas are constant and risk premia vary with expected returns on a small number of unobservable hedge portfolios. The data strongly reject a single-latent-variable model. The last part of the paper examines the relationship between conditional means and variances of returns on bills, bonds and stocks. Bill returns tend to be high when their conditional variance is high, but there is a perverse negative relationship between stock returns and their conditional variance. A model is estimated which assumes that asset returns are determined by their time-varying betas with a fixed-weight "benchmark" portfolio of bills, bonds and stocks, whose return is proportional to its conditional variance. This portfolio is estimated to place almost all its weight on bills, indicating that uncertainty about nominal interest rates is important in pricing both short- and long-term assets

Portfolio Selection and Asset Pricing

Portfolio Selection and Asset Pricing
Author: Shouyang Wang
Publisher: Springer Science & Business Media
Total Pages: 260
Release: 2012-12-06
Genre: Business & Economics
ISBN: 3642559344

In our daily life, almost every family owns a portfolio of assets. This portfolio could contain real assets such as a car, or a house, as well as financial assets such as stocks, bonds or futures. Portfolio theory deals with how to form a satisfied portfolio among an enormous number of assets. Originally proposed by H. Markowtiz in 1952, the mean-variance methodology for portfolio optimization has been central to the research activities in this area and has served as a basis for the development of modem financial theory during the past four decades. Follow-on work with this approach has born much fruit for this field of study. Among all those research fruits, the most important is the capital asset pricing model (CAPM) proposed by Sharpe in 1964. This model greatly simplifies the input for portfolio selection and makes the mean-variance methodology into a practical application. Consequently, lots of models were proposed to price the capital assets. In this book, some of the most important progresses in portfolio theory are surveyed and a few new models for portfolio selection are presented. Models for asset pricing are illustrated and the empirical tests of CAPM for China's stock markets are made. The first chapter surveys ideas and principles of modeling the investment decision process of economic agents. It starts with the Markowitz criteria of formulating return and risk as mean and variance and then looks into other related criteria which are based on probability assumptions on future prices of securities.

The Term Structure of the Risk-Return Trade-Off

The Term Structure of the Risk-Return Trade-Off
Author: John Y. Campbell
Publisher:
Total Pages: 54
Release: 2008
Genre:
ISBN:

Expected excess returns on bonds and stocks, real interest rates, and risk shift over time in predictable ways. Furthermore, these shifts tend to persist for long periods. Changes in investment opportunities can alter the risk-return trade-off of bonds, stocks, and cash across investment horizons, thus creating a term structure of the risk-return trade-off. This term structure can be extracted from a parsimonious model of return dynamics, as is illustrated with data from the U.S. stock and bond markets.

Operations Research Proceedings 2006

Operations Research Proceedings 2006
Author: Karl-Heinz Waldmann
Publisher: Springer Science & Business Media
Total Pages: 590
Release: 2007-08-11
Genre: Business & Economics
ISBN: 3540699953

This volume contains a selection of papers referring to lectures presented at the symposium Operations Research 2006 held at the University of Karlsruhe. The symposium presented the state of the art in Operations Research and related areas in Economics, Mathematics, and Computer Science and demonstrated the broad applicability of its core themes, placing particular emphasis on Basel II, one of the most topical challenges of Operations Research.

Term Structure of Interest Rates

Term Structure of Interest Rates
Author: Burton Gordon Malkiel
Publisher: Princeton University Press
Total Pages: 294
Release: 2015-12-08
Genre: Business & Economics
ISBN: 1400879787

Can expectations alone explain the yield differentials among bonds of different maturities? To what extend do attitudes toward risk and transactions costs influence the behavior of bond investors? Is it possible for the Federal Reserve to "twist" the interest-rate structure in accordance with its policy objectives? These are among the questions treated. Originally published in 1966. The Princeton Legacy Library uses the latest print-on-demand technology to again make available previously out-of-print books from the distinguished backlist of Princeton University Press. These editions preserve the original texts of these important books while presenting them in durable paperback and hardcover editions. The goal of the Princeton Legacy Library is to vastly increase access to the rich scholarly heritage found in the thousands of books published by Princeton University Press since its founding in 1905.

Modeling the Term Structure of Interest Rates

Modeling the Term Structure of Interest Rates
Author: Rajna Gibson
Publisher: Now Publishers Inc
Total Pages: 171
Release: 2010
Genre: Business & Economics
ISBN: 1601983727

Modeling the Term Structure of Interest Rates provides a comprehensive review of the continuous-time modeling techniques of the term structure applicable to value and hedge default-free bonds and other interest rate derivatives.