Reassessing the Swedish Equity Premium: A Duration-Matched Approach

Sammanfattning

The thesis applies the duration-based valuation framework of Binsbergen (2026)to the Swedish equity market over 2004–2025. Equity returns on the OMXSPITotal Return Index are compared with the realised return of a duration-matchedgovernment bond counterfactual constructed using the Gordon growth model. Overthe sample, the conventional Swedish equity premium is 12.13 percent when measuredagainst the three-month SSVX. In the duration-based decomposition, the realisedterm premium is 5.76 percentage points while the residual dividend risk premiumis 6.35 percentage points. The residual dividend risk premium is not statisticallydistinguishable from zero at the 5 percent level. Nevertheless, the results suggestthat part of the conventional Swedish equity premium reflects compensation forlong-duration bond exposure rather than dividend risk alone. The duration-matchedcomparison, therefore, provides an alternative interpretation of equity compensationrelative to the conventional short-rate benchmark