Term Structures of Asset Prices and Returns

48 Pages Posted: 18 Apr 2016

See all articles by David K. Backus

David K. Backus

NYU Stern School of Business; National Bureau of Economic Research (NBER)

Nina Boyarchenko

Federal Reserve Bank of New York

Mikhail Chernov

UCLA Anderson

Multiple version iconThere are 3 versions of this paper

Date Written: April 2016

Abstract

We explore the term structures of claims to a variety of cash flows:

• US government bonds (claims to dollars), foreign government bonds (claims to foreign currency);

• inflation-adjusted bonds (claims to the price index);

• and equity (claims to future equity indexes or dividends).

Average term structures reflect the dynamics of the dollar pricing kernel, of cash flow growth, and of their interaction.

We use simple models to illustrate how relations between the two components can deliver term structures with a wide range of levels and shapes.

Keywords: entropy; coentropy; term structure; yields; excess returns

JEL Classification: G12, G13

Suggested Citation

Backus, David K. and Boyarchenko, Nina and Chernov, Mikhail, Term Structures of Asset Prices and Returns (April 2016). CEPR Discussion Paper No. DP11227. Available at SSRN: https://ssrn.com/abstract=2766555

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Nina Boyarchenko

Federal Reserve Bank of New York ( email )

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Mikhail Chernov

UCLA Anderson ( email )

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