87 Pages Posted: 14 Jun 2019 Last revised: 30 Jul 2021
Date Written: July 22, 2021
We propose a duration-based explanation for the premia on major equity factors, including value, profitability, investment, low-risk, and payout factors. These factors invest in firms that earn most of their cash flows in the near future and could therefore be driven by a premium on near-future cash flows. We test this hypothesis using a novel dataset of single-stock dividend futures, which are claims on dividends of individual firms. Consistent with our hypothesis, the expected CAPM alpha on individual cash flows decrease in maturity within a firm, and the alpha is not related to the above characteristics when controlling for maturity.
Keywords: asset pricing, cross-section of stock returns, cash-flow growth, duration, survey expectations, dividend strips
JEL Classification: G10, G12, G40
Suggested Citation: Suggested Citation