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Implied Equity Duration: Lessons from the Japanese Financial Crises

Author

Listed:
  • Yuichi Fukuta

    (Graduate School of Economics, Osaka University)

  • Akiko Yamane

    (Graduate School of Humanities and Social Sciences, Hiroshima University)

Abstract

We present novel insights into the Japanese equity return term structure by examining the re- versals of risk-adjusted returns on duration-sorted portfolios, as were particularly observed during the COVID-19 pandemic and are common during crises. Our analysis, conducted over the Japanese stock market from 1990 to 2022, reveals that market uncertainty significantly explains the returns of the long-short duration portfolio. Additionally, we find that the countercyclicality of the equity term structure can be attributed to di erences in the response of returns to considerably large neg- ative shocks. This study contributes to the understanding of the relationship between the timing of cash ows and stock returns and o ers valuable implications for studies on the cross-section of stock returns.

Suggested Citation

  • Yuichi Fukuta & Akiko Yamane, 2024. "Implied Equity Duration: Lessons from the Japanese Financial Crises," Discussion Papers in Economics and Business 24-08, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:2408
    as

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    File URL: https://www2.econ.osaka-u.ac.jp/econ_society/dp/2408.pdf
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    References listed on IDEAS

    as
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    2. Keiichi Kubota & Hitoshi Takehara, 2018. "Does the Fama and French Five†Factor Model Work Well in Japan?," International Review of Finance, International Review of Finance Ltd., vol. 18(1), pages 137-146, March.
    3. Niels Joachim Gormsen & Eben Lazarus, 2023. "Duration‐Driven Returns," Journal of Finance, American Finance Association, vol. 78(3), pages 1393-1447, June.
    4. Niels Joachim Gormsen, 2021. "Time Variation of the Equity Term Structure," Journal of Finance, American Finance Association, vol. 76(4), pages 1959-1999, August.
    Full references (including those not matched with items on IDEAS)

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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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