Research / BFI Working PaperAug 01, 2016

Cash Flow Duration and the Term Structure of Equity Returns

The term structure of equity returns is downward-sloping: stocks with high cash flow duration earn 1.10% per month lower returns than short-duration stocks in the cross section. I create a measure of cash flow duration at the firm level using balance sheet data to show this novel fact. Factor models can explain only 50% of the return differential, and the difference in returns is three times larger after periods of high investor sentiment. I use institutional ownership as a proxy for short-sale constraints, and find the negative cross-sectional relationship between cash flow duration and returns is only contained within short-sale constrained stocks.

More Research From These Scholars

BFI Working Paper Jan 4, 2023

Missing Data in Asset Pricing Panels

Joachim Freyberger, Björn Höppner, Andreas Neuhierl, Michael Weber
Topics:  Uncategorized
BFI Working Paper Nov 9, 2017

The Information Content of Dividends: Safer Profits, Not Higher Profits

Michael Weber, Roni Michaely, Stefano Rossi
Topics:  Fiscal Studies
BFI Working Paper Aug 14, 2020

How Did U.S. Consumers Use Their Stimulus Payments?

Olivier Coibion, Yuriy Gorodnichenko, Michael Weber
Topics:  COVID-19