The Short Duration Premium

90 Pages Posted: 17 Jun 2019 Last revised: 2 Dec 2020

See all articles by Andrei S. Gonçalves

Andrei S. Gonçalves

Ohio State University (OSU) - Fisher College of Business

Date Written: October 08, 2020

Abstract

Stocks of firms with cash flows concentrated in the short-term (i.e., short duration stocks) pay a large premium over long duration stocks. I empirically demonstrate this premium: (i) is long-lived and strong even among large firms; (ii) subsumes the value and profitability premia; and (iii) exposes investors to variation in expected returns, especially in times when the premium is high. These facts are consistent with an intertemporal model in which the marginal (long-term) investor dislikes expected return declines as they lead to lower expected wealth growth. The model also captures the positive relation between risk premia and bond duration.

Keywords: Equity Duration, Term Structure of Risk Premia, Intertemporal CAPM, Reinvestment Risk, Value Premium, Profitability Premium

JEL Classification: E32, E43, E44, G10, G11, G12

Suggested Citation

S. Gonçalves, Andrei, The Short Duration Premium (October 08, 2020). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3385579 or http://dx.doi.org/10.2139/ssrn.3385579

Andrei S. Gonçalves (Contact Author)

Ohio State University (OSU) - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

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