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Ralph S. J. Koijen

Bio: Ralph S. J. Koijen is an academic researcher from University of Chicago. The author has contributed to research in topics: Dividend & Capital asset pricing model. The author has an hindex of 34, co-authored 104 publications receiving 4338 citations. Previous affiliations of Ralph S. J. Koijen include New York University & Tilburg University.


Papers
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Journal ArticleDOI
TL;DR: In this paper, the authors measure the prices of dividend strips to study the term structure of the equity risk premium and find that short-term and long-term dividends contribute proportionally more than the other.
Abstract: A central question in economics is how to discount future cash flows to obtain today's value of an asset. For instance, total wealth is the price of a claim to all future consumption (Lucas 1978). Similarly, the value of the aggregate stock market equals the sum of discounted future dividend payments (Gordon 1962). The major ity of the equity market literature has focused on the dynamics of the value of the aggregate stock market. However, in addition to studying the value of the sum of discounted dividends, exploring the properties of the individual terms in the sum, also called dividend strips, provides us with a lot of information about the way stock prices are formed. Analogous to zero-coupon bonds, which contain information about discount rates at different horizons for fixed income securities, having infor mation on dividend strips informs us about discount rates of risky cash flows at dif ferent horizons. Studying dividend strips can therefore improve our understanding of investors' risk preferences and the endowment or technology process in macro finance models. This paper is the first to empirically measure the prices of dividend strips to study the term structure of the equity premium. Our approach requires only no-arbitrage relations and does not rely on a specific model. We shed new light on the composition of the equity risk premium. The equity premium puzzle, identified by Mehra and Prescott (1985), Hansen and Singleton (1982), and Hansen and Singleton (1983), states that, for plausible values of the risk aversion coefficient, the difference in the expected rate of return on the stock market and the riskless rate of interest is too large, given the observed small variance in the growth rate in per capita consumption. When decomposing the index into dividend strips, a natural question that arises is whether dividends at different horizons contrib ute equally to the equity risk premium or whether either short- or long-term dividends contribute proportionally more than the other. We find that short-term dividends have

401 citations

Posted Content
TL;DR: The authors proposed a latent variables approach within a present-value model to estimate the expected returns and expected dividend growth rates of the aggregate stock market and found that returns and growth rates are predictable with R-squared values ranging from 8.2% to 8.9% for returns and 13.9%-15.6% for growth rates.
Abstract: We propose a latent variables approach within a present-value model to estimate the expected returns and expected dividend growth rates of the aggregate stock market. This approach aggregates information contained in the history of price-dividend ratios and dividend growth rates to predict future returns and dividend growth rates. We find that returns and dividend growth rates are predictable with R-squared values ranging from 8.2% to 8.9% for returns and 13.9% to 31.6% for dividend growth rates. Both expected returns and expected dividend growth rates have a persistent component, but expected returns are more persistent than expected dividend growth rates.

376 citations

ReportDOI
TL;DR: In this paper, the authors use data from aggregate stock and dividend futures markets to quantify how investors' expectations about economic growth evolved across horizons following the outbreak of the novel coronavirus (COVID-19) and subsequent policy responses until July 2020.
Abstract: We use data from aggregate stock and dividend futures markets to quantify how investors’ expectations about economic growth evolved across horizons following the outbreak of the novel coronavirus (COVID-19) and subsequent policy responses until July 2020 Dividend futures, which are claims to dividends on the aggregate stock market in a particular year, can be used to directly compute a lower bound on growth expectations across maturities or to estimate expected growth using a forecasting model We show how the actual forecast and the bound evolve over time As of July 20th, our forecast of annual growth in dividends points to a decline of 8% in both the United States and Japan and a 14% decline in the European Union compared to January 1 Our forecast of GDP growth points to a decline of 2% in the United States and Japan and 3% in the European Union The lower bound on the change in expected dividends is -17% in the United States and Japan and -28% in the European Union at the 2-year horizon News about U S monetary policy and the fiscal stimulus bill around March 24 boosted the stock market and long-term growth but did little to increase short-term growth expectations Expected dividend growth has improved since April 1 in all geographies

276 citations

Journal ArticleDOI
TL;DR: This paper proposed a latent variables approach within a present-value model to estimate the time series of expected returns and expected dividend growth rates of the aggregate stock market and found that returns and dividend growth rate are predictable with R2 values ranging from 8.2% to 8.9%.
Abstract: We propose a latent variables approach within a present-value model to estimate the expected returns and expected dividend growth rates of the aggregate stock market. This approach aggregates information contained in the history of price-dividend ratios and dividend growth rates to predict future returns and dividend growth rates. We find that returns and dividend growth rates are predictable with R2 values ranging from 8.2% to 8.9% for returns and 13.9% to 31.6% for dividend growth rates. Both expected returns and expected dividend growth rates have a persistent component, but expected returns are more persistent than expected dividend growth rates. We propose a latent variables approach within a present- value model to estimate the time series of expected returns and expected dividend growth rates of the aggregate stock market. Specifically, we treat conditional expected returns and expected dividend growth rates as latent variables that follow an exogenously specified time-series model, and we combine this model with a Campbell and Shiller (1988) present- value model to derive the implied dynamics of the price-dividend ratio. Then, using a Kaiman filter to construct the likelihood of our model, we estimate the parameters of the model by means of maximum likelihood. We find that both expected returns and expected dividend growth rates are time-varying and persistent, but expected returns are more persistent than expected dividend growth rates. The filtered series for expected returns and expected dividend growth rates are good predictors of realized returns and realized dividend growth rates, with R2 values ranging from 8.2% to 8.9% for returns and 13.9% to 31.6% for dividend growth rates.

270 citations

Journal ArticleDOI
TL;DR: This article developed an asset pricing model with flexible heterogeneity in asset demand across investors, designed to match institutional and household holdings, with a portfolio choice model implying characterist characteristics of asset demand.
Abstract: We develop an asset pricing model with flexible heterogeneity in asset demand across investors, designed to match institutional and household holdings. A portfolio choice model implies characterist...

230 citations


Cited by
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TL;DR: The authors developed a new index of economic policy uncertainty based on newspaper coverage frequency and found that policy uncertainty spikes near tight presidential elections, Gulf Wars I and II, the 9/11 attacks, the failure of Lehman Brothers, the 2011 debt ceiling dispute and other major battles over fiscal policy.
Abstract: We develop a new index of economic policy uncertainty (EPU) based on newspaper coverage frequency Several types of evidence – including human readings of 12,000 newspaper articles – indicate that our index proxies for movements in policy-related economic uncertainty Our US index spikes near tight presidential elections, Gulf Wars I and II, the 9/11 attacks, the failure of Lehman Brothers, the 2011 debt-ceiling dispute and other major battles over fiscal policy Using firm-level data, we find that policy uncertainty raises stock price volatility and reduces investment and employment in policy-sensitive sectors like defense, healthcare, and infrastructure construction At the macro level, policy uncertainty innovations foreshadow declines in investment, output, and employment in the United States and, in a panel VAR setting, for 12 major economies Extending our US index back to 1900, EPU rose dramatically in the 1930s (from late 1931) and has drifted upwards since the 1960s

4,484 citations

Posted Content
TL;DR: In this paper, the authors provide a unified and comprehensive theory of structural time series models, including a detailed treatment of the Kalman filter for modeling economic and social time series, and address the special problems which the treatment of such series poses.
Abstract: In this book, Andrew Harvey sets out to provide a unified and comprehensive theory of structural time series models. Unlike the traditional ARIMA models, structural time series models consist explicitly of unobserved components, such as trends and seasonals, which have a direct interpretation. As a result the model selection methodology associated with structural models is much closer to econometric methodology. The link with econometrics is made even closer by the natural way in which the models can be extended to include explanatory variables and to cope with multivariate time series. From the technical point of view, state space models and the Kalman filter play a key role in the statistical treatment of structural time series models. The book includes a detailed treatment of the Kalman filter. This technique was originally developed in control engineering, but is becoming increasingly important in fields such as economics and operations research. This book is concerned primarily with modelling economic and social time series, and with addressing the special problems which the treatment of such series poses. The properties of the models and the methodological techniques used to select them are illustrated with various applications. These range from the modellling of trends and cycles in US macroeconomic time series to to an evaluation of the effects of seat belt legislation in the UK.

4,252 citations

Posted Content
TL;DR: The Arrow-Pratt theory of risk aversion was shown to be isomorphic to the theory of optimal choice under risk in this paper, making possible the application of a large body of knowledge about risk aversion to precautionary saving.
Abstract: The theory of precautionary saving is shown in this paper to be isomorphic to the Arrow-Pratt theory of risk aversion, making possible the application of a large body of knowledge about risk aversion to precautionary saving, and more generally, to the theory of optimal choice under risk In particular, a measure of the strength of precautionary saving motive analogous to the Arrow-Pratt measure of risk aversion is used to establish a number of new propositions about precautionary saving, and to give a new interpretation of the Oreze-Modigliani substitution effect

1,944 citations

Journal ArticleDOI
TL;DR: Discount-rate variation is the central organizing question of current asset-pricing research as discussed by the authors, and a survey of discount-rate theories and applications can be found in the survey.
Abstract: Discount-rate variation is the central organizing question of current asset-pricing research. I survey facts, theories, and applications. Previously, we thought returns were unpredictable, with variation in price-dividend ratios due to variation in expected cashflows. Now it seems all price-dividend variation corresponds to discount-rate variation. We also thought that the cross-section of expected returns came from the CAPM. Now we have a zoo of new factors. I categorize discount-rate theories based on central ingredients and data sources. Incorporating discount-rate variation affects finance applications, including portfolio theory, accounting, cost of capital, capital structure, compensation, and macroeconomics.

1,624 citations