IDEAS home Printed from https://ideas.repec.org/p/fip/fednsr/103730.html

The Implied Equity Term Structure

Author

Abstract

We propose a new methodology to estimate the equity term structure. Instead of using realized returns of dividend assets, we generalize the implied cost of capital approach and imply the term structure of ex-ante expected returns from the cross-section of observed stock prices and projected firm-level cash flows. Using US data for 1980-2024, we find an unconditionally upward sloping term structure of risk premia with rich cross-sectional patterns in the size, value and credit risk dimensions. Strikingly, value firms and speculative-grade firms have flat or even downward-sloping term structures. We also detect that the term structure flattens out in recessions.

Suggested Citation

  • Lieven Baele & Joost Driessen & Tomas Jankauskas, 2026. "The Implied Equity Term Structure," Staff Reports 1203, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:103730
    DOI: 10.59576/sr.1203
    as

    Download full text from publisher

    File URL: https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr1203.pdf
    File Function: Full text
    Download Restriction: no
    File URL: https://www.newyorkfed.org/research/staff_reports/sr1203.html
    File Function: Summary
    Download Restriction: no
    File URL: https://libkey.io/10.59576/sr.1203?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Keywords

    ;
    ;
    ;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fednsr:103730. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Gabriella Bucciarelli (email available below). General contact details of provider: https://edirc.repec.org/data/frbnyus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.