Risk and Return of Short-Duration Equity Investments

48 Pages Posted: 3 Jan 2014 Last revised: 14 Mar 2017

See all articles by Georg Cejnek

Georg Cejnek

ZZ Vermögensverwaltung

Otto Randl

WU Vienna University of Economics and Business

Date Written: December 22, 2015

Abstract

We analyze short-duration equity investments using traded claims on index dividends. We show that investment strategies with constant short maturity outperform a systematic long position in the underlying equity index on a risk-adjusted basis and in absolute terms. Furthermore, we find higher international diversification benefits for this strategy, compared to traditional equity indices. We relate the observed outperformance to market downside exposure, in particular an options-based downside risk factor. We use three alternative models to extract ex-ante risk premia implied in the prices of dividend derivatives and find evidence for substantial time variation in expected returns.

Keywords: Dividend derivatives; short-maturity anomaly; term structure of equity risk premia; downside risk; investment strategy

JEL Classification: G11, G12, G15

Suggested Citation

Cejnek, Georg and Randl, Otto, Risk and Return of Short-Duration Equity Investments (December 22, 2015). Journal of Empirical Finance, Volume 36, pp. 181-198, 2016, Available at SSRN: https://ssrn.com/abstract=2374023 or http://dx.doi.org/10.2139/ssrn.2374023

Georg Cejnek (Contact Author)

ZZ Vermögensverwaltung ( email )

Coburgbastei 4, Top5
Vienna, 1010
Austria
+43151818934 (Phone)

Otto Randl

WU Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, 1020
Austria
+ 43 1 313 36 - 5076 (Phone)

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