Implied Equity Duration: Lessons from the Japanese Financial Crises

Yuichi Fukuta and Akiko Yamane ()
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Yuichi Fukuta: Graduate School of Economics, Osaka University
Akiko Yamane: Graduate School of Humanities and Social Sciences, Hiroshima University

No 24-08, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: We present novel insights into the Japanese equity return term structure by examining the re- versals of risk-adjusted returns on duration-sorted portfolios, as were particularly observed during the COVID-19 pandemic and are common during crises. Our analysis, conducted over the Japanese stock market from 1990 to 2022, reveals that market uncertainty significantly explains the returns of the long-short duration portfolio. Additionally, we find that the countercyclicality of the equity term structure can be attributed to di erences in the response of returns to considerably large neg- ative shocks. This study contributes to the understanding of the relationship between the timing of cash ows and stock returns and o ers valuable implications for studies on the cross-section of stock returns.

Keywords: equity duration; cross-section of stock returns; market uncertainty; financial crisis; pan- demic (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2024-07
New Economics Papers: this item is included in nep-fmk and nep-inv
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