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Cash Flow Duration and the Term Structure of Equity Returns

Michael Weber ()

No 22520, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The term structure of equity returns is downward-sloping: stocks with high cash flow duration earn 1.10% per month lower returns than short-duration stocks in the cross section. I create a measure of cash flow duration at the firm level using balance sheet data to show this novel fact. Factor models can explain only 50% of the return differential, and the difference in returns is three times larger after periods of high investor sentiment. I use institutional ownership as a proxy for short-sale constraints, and find the negative cross-sectional relationship between cash flow duration and returns is only contained within short-sale constrained stocks.

JEL-codes: E43 G12 G14 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2016-08
Note: AP
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Published as Michael Weber, 2018. "Cash flow duration and the term structure of equity returns," Journal of Financial Economics, .

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