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Duration‐Driven Returns

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  • NIELS JOACHIM GORMSEN
  • EBEN LAZARUS

Abstract

We propose a duration‐based explanation for the premia on major equity factors, including value, profitability, investment, low‐risk, and payout factors. These factors invest in firms that earn most of their cash flows in the near future and could therefore be driven by a premium on near‐future cash flows. We test this hypothesis using a novel data set of single‐stock dividend futures, which are claims on dividends of individual firms. Consistent with our hypothesis, the expected Capital Asset Pricing Model alpha on individual cash flows decreases in maturity within a firm, and the alpha is not related to the above characteristics when controlling for maturity.

Suggested Citation

  • Niels Joachim Gormsen & Eben Lazarus, 2023. "Duration‐Driven Returns," Journal of Finance, American Finance Association, vol. 78(3), pages 1393-1447, June.
    • Handle: RePEc:bla:jfinan:v:78:y:2023:i:3:p:1393-1447
    DOI: 10.1111/jofi.13216
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    References listed on IDEAS

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