DP11227 Term structures of asset prices and returns

Author(s): David Backus, Nina Boyarchenko, Mikhail Chernov
Publication Date: April 2016
Keyword(s): coentropy, entropy, excess returns, term structure, yields
JEL(s): G12, G13
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=11227

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.