Implied Equity Duration: Lessons from the Japanese Financial Crises

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.