Duration-Driven Returns

91 Pages Posted: 14 Jun 2019 Last revised: 20 Jun 2022

See all articles by Niels Joachim Gormsen

Niels Joachim Gormsen

University of Chicago - Booth School of Business

Eben Lazarus

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: June 16, 2022

Abstract

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

Gormsen, Niels Joachim and Lazarus, Eben, Duration-Driven Returns (June 16, 2022). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3359027 or http://dx.doi.org/10.2139/ssrn.3359027

Niels Joachim Gormsen (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Eben Lazarus

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street, E62-633
Cambridge, MA 02142
United States
6173247036 (Phone)

HOME PAGE: http://elazarus.mit.edu

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