• Abstract
  • Non-technical summary
  • 1 Introduction
  • 2 An affi ne arbitrage-free model ofbond and stock market dynamics
  • 2.1 Factor process
  • 2.2 Real pricing kernel
  • 2.3 Nominal pricing kernel
  • 2.4 Pricing nominal zero-coupon bonds
  • 2.5 Pricing dividend-paying stocks
  • 2.6 Risk premia
  • 3 The three-stage dividend discount modelas a benchmark for comparison
  • 3.1 A short description of the dividenddiscount model
  • 3.2 A comparison of the arbitrage-free modeland the dividend-discount model
  • 4 Estimation approach and data
  • 4.1 The empirical model in state space form
  • 4.2 Parameter restrictions
  • v4.3 Estimation of parameters
  • 4.4 The data
  • 5 Empirical results
  • 5.1 Parameter estimates and fi t
  • 5.2 Estimated term premia
  • 5.3 The time series and cross sectionof estimated equity risk premia
  • 6 Conclusion
  • References
  • Annexes
  • Tables and fi gures
  • European Central Bank Working Paper Series