Term Structures of Asset Prices and Returns

David Backus, Nina Boyarchenko, Mikhail Chernov

NBER Working Paper No. 22162
Issued in April 2016
 

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.