Authors: Lieven Baele, Joost Driessen, and Tomas Jankauskas
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Staff Reports
The Implied Equity Term Structure
Number 1203
September 2026
September 2026
JEL classification: G10, G12
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.
Author Disclosure Statement(s)
Lieven Baele
The author declares that (s)he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Joost Driessen
The author declares that (s)he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Tomas Jankauskas
The author declares that (s)he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
The author declares that (s)he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Joost Driessen
The author declares that (s)he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Tomas Jankauskas
The author declares that (s)he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Suggested Citation:
Baele, Lieven, Joost Driessen, and Tomas Jankauskas. 2026. “The Implied Equity Term Structure.” Federal Reserve Bank of New York Staff Reports, no. 1203, September. https://doi.org/10.59576/sr.1203
Baele, Lieven, Joost Driessen, and Tomas Jankauskas. 2026. “The Implied Equity Term Structure.” Federal Reserve Bank of New York Staff Reports, no. 1203, September. https://doi.org/10.59576/sr.1203
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