Yan, Wen
(2015)
Essays on the term structures of bonds and equities.
PhD thesis, London School of Economics and Political Science.
Abstract
Chapter 1 “The Term Structure of Equities” examines the term structure of equities. Using observed prices of dividend strips, prices of zero-coupon equities are extracted, and their yields and returns characteristics are documented. An affine term structure model is used to model the term structure of equities. The model is estimated, and model-implied equity yields and returns are shown to match the data well. However, the modelimplied long-run risk-neutral mean of the short rate is implausible. (The next chapter takes this into account and estimates bond and equity yield curves jointly using data on both zero-coupon bonds and zero-coupon equities.)
Chapter 2 “Estimating a Unified Framework of Co-Pricing Stocks and Bonds” estimates a maximal identifiable affine term structure model that explains the joint prices of stocks and bonds. Using the test assets of Treasury bonds and dividend strips, it is shown that the estimated
model can generally match the time series and cross-sectional properties of zero-coupon bonds, zero-coupon equities and the aggregate stock index. Moreover, imposing restrictions prevalent in the co-pricing literature on the maximal model enhances certain features of the model
such as the high return of the short-term dividend strip, but reduces the model’s ability to fit other aspects of the data such as the level of the market risk premium.
Chapter 3 “The Role of Asian Countries” Reserve Holdings on the International Yield Curves” studies the effect of Asian countries’ reserve holdings on the yield curves of six industrialized countries: the United States, the United Kingdom, Germany, Canada, Switzerland and Australia. A Gaussian affine term structure model with three yield factors and three unspanned macro factors including reserves is estimated to fit the yield curve of each country. Impulse responses and variance decompositions show that Asian countries’ reserve holdings are an important factor affecting the international yield curves.
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