Implied Equity Duration: A New Measure of Equity Security Risk
67 Pages Posted: 3 Jul 2001
Date Written: June 2001
Abstract
We derive a measure of implied equity duration as a natural extension of the traditional measure of bond duration and develop an algorithm for the empirical estimation of implied equity duration. We show that the standard empirical predictions and results for bond duration hold for our measure of implied equity duration and that implied equity duration represents an important common factor in stock returns. We also show that the book-to-market factor advocated by Fama and French (1993) acts as a noisy proxy for an underlying duration factor. Finally, we provide evidence that the long-run equity yield curve is downward sloping for durations up to 20 years. Our results suggest that existing empirical tests of asset pricing models using short holding period equity returns are misspecified.
Keywords: Duration, risk, factors, premium, valuation, returns
JEL Classification: M4, G1
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Capital Markets Research in Accounting
By S.p. Kothari
-
What is the Intrinsic Value of the Dow?
By Charles M.c. Lee, James N. Myers, ...
-
Accruals and the Prediction of Future Cash Flows
By Mary E. Barth, Donald P. Cram, ...
-
By Stephen Brown, Kin Lo, ...
-
A Comparison of Dividend, Cash Flow, and Earnings Approaches to Equity Valuation
-
By Mary E. Barth, William H. Beaver, ...
-
Investor Valuation of the Abandonment Option
By Philip G. Berger, Eli Ofek, ...
-
Investor Valuation of the Abandonment Option
By Peter Berger, Eli Ofek, ...
-
Accounting Conservatism, the Quality of Earnings, and Stock Returns
By Stephen H. Penman and Xiao-jun Zhang
-
Ratio Analysis and Equity Valuation
By Doron Nissim and Stephen H. Penman