Term structure of variance and dividend returns

Advisor: Ruy Monteiro Ribeiro

We extend the literature on the term structure of variance risk price and dividends strips. First we show that a substantial amount of S&P’s equity premium is on the medium and long run dividends, contrary to previous literature. Then we indicate that market aggregated liquidity is relevant for the returns of variance related assets. We also provide some insights on the connection between these assets and show that the slope of the variance risk curve is a good predictor for monthly returns. Finally, we show that a properly calibrated version of Dreschler and Yaron (2010) can account for most of these stylized facts, as mean returns, Sharpe ratios and returns correlations.