Schröder, David and Esterer, Florian, A New Measure of Equity Duration: The Duration-Based Explanation of the Value Premium Revisited (February 29, 2012). 29th International Conference of the French Finance Association (AFFI) 2012. Available at SSRN
“This paper proposes a new methodology to estimate a share’s equity duration by using analysts’ cash-flow forecasts. We find that short duration is associated with high expected and realized returns – which cannot be attributed to the shares’ systematic risk exposure as implied by the market beta. Instead, we show that this measure of a company’s average cash-flow maturity is a priced risk factor that has similar properties as the Fama-French factor B/M ratio. Our analysis suggests that the value premium might be a compensation for the value firms’ higher exposure to cash-flow risk.”
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