Risk and return of short-duration equity investments

Georg Cejnek and Otto Randl

Journal of Empirical Finance, 2016, vol. 36, issue C, 181-198

Abstract: We analyze short-duration equity investments using traded claims on index dividends. We show that investment strategies with constant short maturity outperform a systematic long position in the underlying equity index on a risk-adjusted basis and in absolute terms. Furthermore, we find higher international diversification benefits for this strategy, compared to traditional equity indices. We relate the observed outperformance to market downside exposure, in particular an options-based downside risk factor. We use three alternative models to extract ex-ante risk premia implied in the prices of dividend derivatives and find evidence for substantial time variation in expected returns.

Keywords: Dividend derivatives; Short-maturity anomaly; Term structure of equity risk premia; Downside risk; Investment strategy (search for similar items in EconPapers)
JEL-codes: E43 G11 G12 G15 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:36:y:2016:i:c:p:181-198

DOI: 10.1016/j.jempfin.2016.01.017

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