Dividend Risk Premia

This paper studies time variation in the expected excess returns of traded claims on dividends, bonds, and stock indices for international markets. We introduce a novel dividend risk factor that complements the bond risk factor of Cochrane and Piazzesi (2005). By aggregating over four regions (U.S., U.K., Eurozone, Japan), we create global dividend and bond factors. Our global two-factor model captures the excess returns of most MSCI country indices, as well as a variety of other test assets. Our findings highlight the value of information contained in dividend and bond forward curves and suggest substantial co-movement in international risk premia.