Is There An Equity Duration Premium?

71 Pages Posted: 13 Jul 2022 Last revised: 2 Aug 2022

See all articles by Dominik Walter

Dominik Walter

Vienna Graduate School of Finance (VGSF)

Rüdiger Weber

WU Vienna; Vienna Graduate School of Finance (VGSF)

Date Written: July 8, 2022

Abstract

Equity duration is a measure of discount-rate sensitivity that is driven by both, stock-specific cash-flow timing and stock-specific discount-rate levels. Established measures of equity duration using market-price information derive their predictive power for returns from using market-implied discount rates. We introduce new measures of pure cash-flow timing which disentangle discount-rate level from cash-flow timing information. Our results indicate an unconditionally flat relationship between timing and average returns. However, it turns out that in recessions (expansion episodes), there is a negative (positive) relation between cash-flow timing and average stock returns.

Keywords: Equity duration, cash flow timing, term structure of equity, cross-section of expected returns

JEL Classification: G12, G17, G23

Suggested Citation

Walter, Dominik and Weber, Rüdiger, Is There An Equity Duration Premium? (July 8, 2022). Available at SSRN: https://ssrn.com/abstract=4157585 or http://dx.doi.org/10.2139/ssrn.4157585

Dominik Walter

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

Rüdiger Weber (Contact Author)

WU Vienna ( email )

Welthandelsplatz 1 1
Wien, 1020
Austria

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

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