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A new measure of equity duration: The duration-based explanation of the value premium revisited

David Schröder and Florian Esterer

Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century from Verein für Socialpolitik / German Economic Association

Abstract: This paper uses analysts' forecasts to estimate a share's equity duration, a measure of a company's average cash-flow maturity. We find that short duration equity is associated with high expected and realized returns, which cannot be attributed to the shares' systematic risk exposure as implied by the market beta. Instead, we show that equity duration is a priced risk factor with similar properties as the Fama-French value factor B/M ratio. Our analysis suggests that the value premium might be a compensation for the value firms' higher exposure to cash-flow risk.

JEL-codes: G12 M41 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn
Date: 2012
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