Duration-Driven Returns

70 Pages Posted: 14 Jun 2019 Last revised: 6 Nov 2020

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: April 22, 2019

Abstract

We propose a duration-based explanation for the major equity risk factors, including value, profitability, investment, low-risk, and payout factors. Both in the US and globally, these factors invest in firms that earn most of their cash flows in the near future. The factors could therefore be driven by a premium on near-future cash flows. We test this hypothesis using a new dataset of single-stock dividend futures, which are claims on annual dividends for individual firms. Consistent with our hypothesis, expected CAPM alpha on individual dividends decrease in maturity within a firm, but do not vary across firms once 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 (April 22, 2019). 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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