A New Measure of Equity Duration: The Duration-Based Explanation of the Value Premium Revisited

This paper proposes a new methodology to estimate a share's equity duration by using analysts'cash-flow forecasts.

Author(s):

David SchroderBirkbeck

College, University of LondonResearch Associate, EDHEC-Risk Institute

Florian Esterer

Swisscanto Asset Management AG

We find that short duration is associated with high expected and realized returns —  which cannot be attributed to the shares' systematic risk exposure as implied by the market beta. Instead, we show that this measure of a company's average cash-flow maturity is a priced risk factor that has similar properties as the Fama-French factor B/M ratio. Our analysis suggests that the value premium might be a compensation for the value firms' higher exposure to cash-flow risk.

Type: Working paper
Date: le 05/12/2011
Research Cluster : Finance

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