The short duration premium

Stocks of firms with cash flows concentrated in the short term (i.e., short duration stocks) pay a large premium over long duration stocks. I empirically demonstrate that this premium (i) is long-lived and strong even among large firms, (ii) subsumes the value and profitability premia, and (iii) exp...

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Bibliographic Details
Published inJournal of financial economics Vol. 141; no. 3; pp. 919 - 945
Main Author Gonçalves, Andrei S.
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 01.09.2021
Elsevier Sequoia S.A
Subjects
Analysis
Bonds
Equity duration
Financial performance
Intertemporal CAPM
Profitability
Rates of return
Reinvestment risk
Stocks
Term structure of risk premia
Value and profitability premia
Wealth
Value and profitability premia
E44
E43
G11
G10
Reinvestment risk
G12
Intertemporal CAPM
Equity duration
Term structure of risk premia
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Summary:Stocks of firms with cash flows concentrated in the short term (i.e., short duration stocks) pay a large premium over long duration stocks. I empirically demonstrate that this premium (i) is long-lived and strong even among large firms, (ii) subsumes the value and profitability premia, and (iii) exposes investors to variation in expected returns, especially in times when the premium is high. These facts are consistent with an intertemporal model in which the marginal (long-term) investor dislikes expected return declines as they lead to lower expected wealth growth. The model also captures the positive relation between risk premia and bond duration.
ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2021.04.019