Implied Equity Duration: A New Measure of Equity Risk

Patricia M. Dechow (), Richard G. Sloan () and Mark T. Soliman ()
Additional contact information
Patricia M. Dechow: University of Michigan Business School
Richard G. Sloan: University of Michigan Business School
Mark T. Soliman: Stanford Graduate School of Business

Review of Accounting Studies, 2004, vol. 9, issue 2, No 4, 197-228

Abstract: Abstract Duration is an important and well-established risk characteristic for fixed income securities. We use recent developments in financial statement analysis research to construct a measure of duration for equity securities. We find that the standard empirical predictions and results for fixed income securities extend to equity securities. We show that stock price volatility and stock beta are both positively correlated with equity duration. Moreover, estimates of common shocks to expected equity returns extracted using our measure of equity duration capture a strong common factor in stock returns. Additional analysis shows that the book-to-market ratio provides a crude measure of equity duration and that our more refined measure of equity duration subsumes the Fama and French (1993) book-to-market factor in stock returns. Our research shows how structured financial statement analysis can be used to construct superior measures of equity security risk.

Keywords: duration; asset pricing; risk; financial statement analysis (search for similar items in EconPapers)
Date: 2004
References: Add references at CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1023/B:RAST.0000028186.44328.3f Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:reaccs:v:9:y:2004:i:2:d:10.1023_b:rast.0000028186.44328.3f

Ordering information: This journal article can be ordered from
http://www.springer.com/accounting/journal/11142

DOI: 10.1023/B:RAST.0000028186.44328.3f

Access Statistics for this article

Review of Accounting Studies is currently edited by Paul Fischer

More articles in Review of Accounting Studies from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().