Reassessing the Swedish Equity Premium: A Duration-Matched Approach

Abstract

The thesis applies the duration-based valuation framework of Binsbergen (2026) to the Swedish equity market over 2004–2025. Equity returns on the OMXSPI Total Return Index are compared with the realised return of a duration-matched government bond counterfactual constructed using the Gordon growth model. Over the sample, the conventional Swedish equity premium is 12.13 percent when measured against the three-month SSVX. In the duration-based decomposition, the realised term premium is 5.76 percentage points while the residual dividend risk premium is 6.35 percentage points. The residual dividend risk premium is not statistically distinguishable from zero at the 5 percent level. Nevertheless, the results suggest that part of the conventional Swedish equity premium reflects compensation for long-duration bond exposure rather than dividend risk alone. The duration-matched comparison, therefore, provides an alternative interpretation of equity compensation relative to the conventional short-rate benchmark