This article 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 4 regions (United States, United Kingdom, Eurozone, and Japan), we create global dividend and bond factors. Our global 2-factor model captures the excess returns of most Morgan Stanley Capital International (MSCI) country indices, as well as a variety of other test assets. Our findings highlight the value of the information contained in dividend and bond forward curves and suggest substantial comovement in international risk premia.

This article shows that, for major equity markets, the proportion of index values attributable to the first 5 years of dividends dropped substantially in the first quarter of 2020 and that this drop was not reversed by the end of the year. In the cross section, this breakdown of dividend smoothing due to COVID-19 was less severe for firms with higher operating cash flows and more positively coskewed stock returns, and it was more pronounced for those with higher leverage and in the financial sector. Heavy dividend cutters also experienced a substantial increase in exposure to systematic risk.