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Horizon Bias and the Term Structure of Equity Returns

Author

Listed:
  • Stefano Cassella
  • Benjamin Golez
  • Huseyin Gulen
  • Peter Kelly
  • Stefano Giglio

Abstract

We label the degree to which individuals are more optimistic at long horizons relative to short horizons as the horizon bias. We examine whether time-series variation in the horizon bias can explain the time-series variation in the equity term structure. We use analyst earnings forecasts to measure the degree of the horizon bias in the stock market. Consistent with the intuition from a stylized present value model, we find that periods of above-average horizon bias are associated with negative term premiums, whereas periods of below-average horizon bias are associated with positive term premiums.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Stefano Cassella & Benjamin Golez & Huseyin Gulen & Peter Kelly & Stefano Giglio, 2023. "Horizon Bias and the Term Structure of Equity Returns," The Review of Financial Studies, Society for Financial Studies, vol. 36(3), pages 1253-1288.
    • Handle: RePEc:oup:rfinst:v:36:y:2023:i:3:p:1253-1288.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhac032
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    Cited by:

    1. Golez, Benjamin & Kelly, Peter & Matthies, Ben, 2025. "What does the equity term structure tell us about Trump 2.0′s first 100 days in office?," Economics Letters, Elsevier, vol. 254(C).
    2. Golez, Benjamin & Koudijs, Peter, 2025. "Equity duration and predictability," Journal of Financial Economics, Elsevier, vol. 172(C).
    3. Golez, Benjamin & Matthies, Ben, 2025. "Fed information effects: Evidence from the equity term structure," Journal of Financial Economics, Elsevier, vol. 165(C).
    4. Prat, Georges & Le Bris, David, 2024. "Term structure of equity risk premia in rough terrain: 150 years of the French stock market," The Quarterly Review of Economics and Finance, Elsevier, vol. 97(C).
    5. Galindo Gil, Hamilton, 2025. "The role of external habits and preference heterogeneity in the equity term structure," Journal of Economic Dynamics and Control, Elsevier, vol. 178(C).
    6. Beckmeyer, Heiner & Meyerhof, Paul, 2025. "The short-duration premium and news announcements," Journal of Banking & Finance, Elsevier, vol. 176(C).
    7. Chen, Shan & Li, Tao, 2025. "A unified duration-based explanation of the value, profitability, and investment anomalies," Journal of Empirical Finance, Elsevier, vol. 84(C).
    8. Pujian Yang & Liu Yang, 2025. "Change of the disposition effect and investor sentiment," Journal of Asset Management, Palgrave Macmillan, vol. 26(5), pages 489-505, September.
    9. Li, Ye & Wang, Chen, 2025. "The Information Cliff," SocArXiv bf8cx_v1, Center for Open Science.
    10. Jankauskas, Tomas, 2023. "Essays in empirical finance," Other publications TiSEM 4c319f87-ba97-44be-897e-1, Tilburg University, School of Economics and Management.

    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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