Abstract

http://ssrn.com/abstract=2079559
 


 



A New Measure of Equity Duration: The Duration-Based Explanation of the Value Premium Revisited


David Schröder


University of London - Birkbeck College

Florian Esterer


Bank J. Safra Sarasin

December 18, 2012


Abstract:     
This paper uses analyst forecasts to estimate a share's equity duration, a measure of a company's average cash-flow maturity. We fi nd 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, this paper shows that equity duration is a priced risk factor that is closely related to the Fama-French value indicator B/M ratio. The results suggest that the B/M ratio can be conceived as a simple proxy for a more fundamental cash-flow risk factor captured
by a fi rm's equity duration.

Number of Pages in PDF File: 28

Keywords: equity duration, value premium, analyst forecasts, B/M ratio, cash-flow maturity, implied cost of capital

JEL Classification: G12, M41

working papers series


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Date posted: September 17, 2012 ; Last revised: May 18, 2013

Suggested Citation

Schröder, David and Esterer, Florian, A New Measure of Equity Duration: The Duration-Based Explanation of the Value Premium Revisited (December 18, 2012). Available at SSRN: http://ssrn.com/abstract=2079559 or http://dx.doi.org/10.2139/ssrn.2079559

Contact Information

David Schroeder (Contact Author)
University of London - Birkbeck College ( email )
Malet Street
London, WC1E 7HX
United Kingdom
Florian Esterer
Bank J. Safra Sarasin ( email )
United States
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