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Cash duration, risk, and implications for stock returns

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  • Taussig, Roi D.

Abstract

This study analyzes a new measure for Cash Duration. The new measure is based on the firm's cash holdings. Higher cash duration implies higher sensitivity of the firm's value to the firm's required return, and therefore, implies higher risk. An analysis of 140,692 firm-year observations from the U.S. cross-section of stock returns reveals that firms with higher cash duration earn higher stock returns. The effect of the new measure is both statistically and economically significant. Moreover, the effect is sustainable for diverse in-sample and out-of-sample robustness tests. The new findings can benefit researchers and practitioners alike.

Suggested Citation

  • Taussig, Roi D., 2025. "Cash duration, risk, and implications for stock returns," Finance Research Letters, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:finlet:v:79:y:2025:i:c:s1544612325000522
    DOI: 10.1016/j.frl.2025.106787
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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