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The Implied Equity Term Structure
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 ...
Working Paper
Flights to Safety
Using only daily data on bond and stock returns, we identify and characterize flight to safety (FTS) episodes for 23 countries. On average, FTS days comprise less than 3% of the sample, and bond returns exceed equity returns by 2.5 to 4%. The majority of FTS events are country-specific not global. FTS episodes coincide with increases in the VIX and the Ted spread, decreases in consumer sentiment indicators and appreciations of the Yen, Swiss franc, and US dollar. The financial, basic materials and industrial industries under-perform in FTS episodes, but the telecom industry outperforms. Money ...