Duration-Driven Returns |
| |
| Authors: | NIELS JOACHIM GORMSEN EBEN LAZARUS |
| |
| Institution: | Niels Joachim Gormsen is at Booth School of Business, the University of Chicago. Eben Lazarus is at the MIT Sloan School of Management. We are grateful for helpful comments from Francesca Bastianello, Bruno Biais, John Campbell, Mike Chernov, John Cochrane, Will Diamond, Darrell Duffie, Eugene Fama, Andrei Gonçalves, Stefano Giglio, Robin Greenwood, Sam Hartzmark, Ralph Koijen, Serhiy Kozak, Lars Lochstoer, Rajnish Mehra, Tobias Moskowitz, Stefan Nagel, Lubos Pastor, Lasse Pedersen, Sophie Shive, Larry Schmidt, Andrei Shleifer, David Thesmar, Jessica Wachter, Wei Xiong, and Dacheng Xiu, as well as three anonymous referees, seminar participants at Chicago Booth, City University of Hong Kong, Duke University, HEC Paris, Hong Kong University of Science and Technology, and London Business School, and participants at the 2020 AFA Conference, the 2020 ASU Sonoran Winter Finance Conference, the 2019 NBER Behavioral Finance Meeting, the 2020 NBER Asset Pricing Meeting, the 2020 ITAM Finance Conference, the 2020 Utah Winter Finance Conference, the 2020 UNC Junior Finance Roundtable, and the UK Virtual Finance Seminar Series. Vanessa Hu, Sanhitha Jugulum, and Jinyuan Zhang provided excellent research assistance. Gormsen thanks the Fama-Miller Center for Research in Finance and the Asness Junior Faculty Fellowship at the University of Chicago Booth School of Business for research support. We have read The Journal of Finance disclosure policy and have no conflicts of interest to disclose. |
| |
| Abstract: | We propose a duration-based explanation for the premia on major equity factors, including value, profitability, investment, low-risk, and payout factors. These factors invest in firms that earn most of their cash flows in the near future and could therefore be driven by a premium on near-future cash flows. We test this hypothesis using a novel data set of single-stock dividend futures, which are claims on dividends of individual firms. Consistent with our hypothesis, the expected Capital Asset Pricing Model alpha on individual cash flows decreases in maturity within a firm, and the alpha is not related to the above characteristics when controlling for maturity. |
| |
| Keywords: | |
|
|
