- (2000). I only use stocks above the 20th size percentile.
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- (2000). I only use stocks above the 20th size percentile.
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- (2000). I only use stocks above the 20th size percentile. Low Dur D2 D3 D4 High Dur D1–D5 α CAP M
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- (2000). The sample period is June 1981 to June 2014. I only use stocks above the 20th size percentile.
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- &F Low RIOR 0.06 -0.08 -0.90 0.95 0.81 0.40 0.19 0.63 (0.14) (0.14) (0.26) (0.21) (0.17) (0.11) (0.20) (0.17) RIOR 0.15 0.06 -0.33 0.47 0.36 0.24 0.29 0.07 (0.08) (0.08) (0.22) (0.22) (0.12) (0.09) (0.15) (0.12) High RIOR 0.08 -0.10 0.15 -0.07 0.53 0.18 0.38 0.14 (0.09) (0.09) (0.21) (0.22) (0.16) (0.12) (0.18) (0.15) RIOR1–RIOR3 -0.02 0.02 -1.05 1.03 0.29 0.22 -0.20 0.48 (0.14) (0.13) (0.19) (0.19) (0.14) (0.10) (0.14) (0.18) Online Appendix: Cash Flow Duration and the Term Structure of Equity Returns Michael Weber Not for Publication Table A.1: Firm Names This table reports five exemplary firm names for companies in the low- and high-duration portfolio in 1996 and 2004.
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Fama, E. F. and K. R. French (2015). A five-factor asset pricing model. Journal of Financial Economics 116(1), 1–22.
Favilukis, J. and X. Lin (2016). Wage rigidity: A solution to several asset pricing puzzles. The Review of Financial Studies 29(1), 148–192.
- Figure 1: Average Term Structure of Equity 6 9 12 15 18 21 24 10 12 14 16 18 20 22 24 A n nu al R etu rn [%] Duration [years] This figure plots the time series average annual portfolio return as a function of the average median portfolio cash flow duration. I sort all common stocks listed on NYSE, AMEX, and NASDAQ at the end of June each year t from 1963 to 2013 into deciles based on duration for all firms with fiscal years ending in year t-1. I weight returns equally and include delisting returns. If a firm is delisted for cause (delisting code between 400 and 591) and has missing delisting return, I assume a delisting return of-30% following Shumway (1997). Financial statement data come from Compustat. For missing Compustat book equity values, I use the Moody’s book equity information collected by Davis et al. (2000).
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- For missing Compustat book equity values, I use the Moody’s book equity information collected by Davis et al. (2000).
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- For missing Compustat book equity values, I use the Moody’s book equity information collected by Davis et al. (2000).
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- For missing Compustat book equity values, I use the Moody’s book equity information collected by Davis et al. (2000). I only use stocks above the 20 th size percentile. Low Dur D2 High Dur D1–D3 Low Dur D2 High Dur D1–D3 Panel I. Growth Stocks Panel II. Value Stocks α F
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- For missing Compustat book equity values, I use the Moody’s book equity information collected by Davis et al. (2000). I use the Fama & French three-factor model is as benchmark.
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- For missing Compustat book equity values, I use the Moody’s book equity information collected by Davis et al. (2000). Low Dur D2 D3 D4 D5 D6 D7 D8 D9 High Dur D1–D10 α F &F 3 0.46 0.34 0.26 0.18 0.17 0.15 0.03 -0.03 -0.08 -0.38 0.84 (0.10) (0.08) (0.07) (0.06) (0.06) (0.06) (0.07) (0.07) (0.11) (0.19) (0.15) α F &F 4 0.60 0.48 0.38 0.31 0.30 0.32 0.20 0.16 0.18 -0.07 0.66 (0.10) (0.07) (0.06) (0.06) (0.06) (0.06) (0.06) (0.06) (0.10) (0.18) (0.15) α F &F 5 0.49 0.35 0.26 0.17 0.17 0.16 0.07 0.07 0.14 0.01 0.48 (0.10) (0.08) (0.07) (0.06) (0.06) (0.07) (0.07) (0.07) (0.10) (0.17) (0.14) Table 4: Mean Excess Returns of 10 Portfolios sorted on Duration (robustness) This table reports monthly mean excess returns with OLS standard errors in parentheses for variations of the parameter values used to calculate duration in Section II.
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- For missing Compustat book equity values, I use the Moody’s book equity information collected by Davis et al. (2000). Low Dur D2 D3 D4 D5 D6 D7 D8 D9 High Dur D1–D10 β M arket 0.95 0.96 0.97 0.99 1.01 1.02 1.03 1.06 1.12 1.08 -0.13 (0.02) (0.02) (0.02) (0.01) (0.01) (0.02) (0.02) (0.02) (0.03) (0.04) (0.04) β SM B 1.03 0.94 0.92 0.87 0.85 0.85 0.85 0.86 0.99 1.21 -0.18 (0.02) (0.02) (0.02) (0.01) (0.01) (0.02) (0.02) (0.02) (0.03) (0.04) (0.04) β HM L 0.53 0.43 0.37 0.32 0.22 0.17 0.04 -0.16 -0.39 -0.49 1.02 (0.02) (0.02) (0.02) (0.01) (0.01) (0.02) (0.02) (0.02) (0.03) (0.04) (0.04) Table A.3: Fama & French 4 Factor Loadings of 10 Portfolios sorted on Duration This table reports time series factor loadings (β) for the Fama & French three-factor model augmented by momentum for ten portfolios sorted on duration (Dur) with OLS standard errors in parentheses.
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- For missing Compustat book equity values, I use the Moody’s book equity information collected by Davis et al. (2000). The realized earnings, earnings forecast, and earnings estimates data come from the Institutional Brokers’ Estimate System (I/B/E/S) for the June statistical periods.
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Gabaix, X. (2012). Variable rare disasters: An exactly solved framework for ten puzzles in macro-finance. Quarterly Journal of Economics 127(2), 645–700.
Gorodnichenko, Y. and M. Weber (2016). Are sticky prices costly? Evidence from the stock market. American Economic Review 106(1), 165–199.
Griffin, J. M. and M. L. Lemmon (2002). Book-to-market equity, distress risk, and stock returns. The Journal of Finance 57(5), 2317–2336.
- I define high and low sentiment periods by the mean level of the sentiment index of Baker and Wurgler (2006). Sentiment betas are the time series factor loadings of the benchmark-adjusted mean excess returns on a constant and changes in the sentiment index. Financial statement data come from Compustat.
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- I sort all common stocks listed on NYSE, AMEX, and NASDAQ at the end of June each year t from 1963 to 2013 into deciles based on duration for all firms with fiscal years ending in year t-1. I weight returns equally and include delisting returns.
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- I sort all common stocks listed on NYSE, AMEX, and NASDAQ at the end of June each year t from 1963 to 2013 into deciles based on duration for all firms with fiscal years ending in year t-1. I weight returns equally and include delisting returns.
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- I sort all common stocks listed on NYSE, AMEX, and NASDAQ at the end of June each year t from 1963 to 2013 into deciles based on duration for all firms with fiscal years ending in year t-1. I weight returns equally and include delisting returns.
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- I sort all common stocks listed on NYSE, AMEX, and NASDAQ at the end of June each year t from 1963 to 2013 into deciles based on duration for all firms with fiscal years ending in year t-1. I weight returns equally and include delisting returns.
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- I sort all common stocks listed on NYSE, AMEX, and NASDAQ at the end of June each year t from 1963 to 2013 into deciles based on duration for all firms with fiscal years ending in year t-1. I weight returns equally and include delisting returns.
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- I sort all common stocks listed on NYSE, AMEX, and NASDAQ at the end of June each year t from 1963 to 2013 into deciles based on duration for all firms with fiscal years ending in year t-1. I weight returns equally and include delisting returns.
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- I sort all common stocks listed on NYSE, AMEX, and NASDAQ at the end of June each year t from 1963 to 2013 into deciles based on duration for all firms with fiscal years ending in year t-1. I weight returns equally and include delisting returns.
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- I sort all common stocks listed on NYSE, AMEX, and NASDAQ at the end of June each year t from 1963 to 2013 into deciles based on duration for all firms with fiscal years ending in year t-1. I weight returns equally and include delisting returns.
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- I sort all common stocks listed on NYSE, AMEX, and NASDAQ at the end of June each year t from 1981 to 2013 into two baskets based on book-to-market, and within each bin I sort stocks into tertiles based on duration for all firms with fiscal years ending in year t-1. I intersect these tertiles with an independent sort on residual institutional ownership as of December t-1. I weight returns equally and include delisting returns.
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- I sort all common stocks listed on NYSE, AMEX, and NASDAQ at the end of June each year t from 1981 to 2013 into two baskets based on size, and within each bin I sort stocks into tertiles based on duration for all firms with fiscal years ending in year t-1. I intersect these tertiles with an independent sort on residual institutional ownership as of December t-1. I weight returns equally and include delisting returns.
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- I sort all common stocks listed on NYSE, AMEX, and NASDAQ at the end of June each year t from 1982 to 2006 into deciles based on duration for all firms with fiscal years ending in year t-1. Financial statement data come from Compustat.
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- I weight returns equally and include delisting returns. If a firm is delisted for cause (delisting code between 400 and 591) and has a missing delisting return, I assume a delisting return of -30% following Shumway (1997). Market is the value-weighted return on all NYSE, AMEX, and NASDAQ common stocks minus the one-month Treasury bill rate, SMB is the average return on three small portfolios minus the average return on three big portfolios, HML is the average return on two value portfolios minus the average return on two growth portfolios, and Mom is the average return on two high prior return portfolios minus the average return on two low prior return portfolios. Dur is cash flow duration. Financial statement data come from Compustat.
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Israel, R. and T. Moskowitz (2013). The role of shorting, firm size, and time on market anomalies. Journal of Financial Economics 108(2), 275–301.
Jones, C. and O. Lamont (2002). Short-sale constraints and stock returns. Journal of Financial Economics 66(2-3), 207–239.
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Lettau, M. and S. Ludvigson (2001). Resurrecting the (C) CAPM: a cross-sectional test when risk premia are time-varying. Journal of Political Economy 109(6), 1238–1287.
Lettau, M., M. Maggiori, and M. Weber (2014). Conditional risk premia in currency markets and other asset classes. Journal of Financial Economics 114(2), 197–225.
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Lopez, P., D. Lopez-Salido, and F. Vazquez-Grande (2015). Nominal rigidities and the term structures of equity and bond returns. Technical report, Unpublished manuscript, FED Board.
- Low Dur D2 D3 D4 D5 D6 D7 D8 D9 High Dur D1–D10 Panel A. Sentiment Alphas α HighSent 0.17 0.20 0.20 0.10 0.11 0.05 -0.11 -0.20 -0.41 -1.15 1.32 (0.15) (0.12) (0.10) (0.10) (0.09) (0.10) (0.10) (0.11) (0.17) (0.29) (0.24) α LowSent 0.77 0.49 0.34 0.25 0.21 0.23 0.15 0.12 0.19 0.31 0.46 (0.15) (0.12) (0.10) (0.09) (0.09) (0.10) (0.10) (0.11) (0.16) (0.28) (0.23) Panel B. Sentiment Betas β Sent 0.24 0.18 0.05 0.02 0.02 0.02 0.09 0.19 0.37 0.62 -0.38 (0.10) (0.08) (0.07) (0.07) (0.07) (0.07) (0.07) (0.08) (0.11) (0.20) (0.16) Table 7: Earnings Growth of 10 Portfolios sorted on Duration This table reports time series averages of long-term earnings growth (LT G) forecasts in Panel A, mean realized five-year growth in earnings per share (EG) in Panel B, and standardized earnings surprising (SU E) following Livnat and Mendenhall (2006) in Panel C for ten portfolios sorted on duration.
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Malloy, C., T. Moskowitz, and A. Vissing-Jørgensen (2009). Long-run stockholder consumption risk and asset returns. The Journal of Finance 64(6), 2427–2479.
- Marfè, R. (2016). Income insurance and the equilibrium term-structure of equity. Journal of Finance (forthcoming).
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Miller, E. M. (1977). Risk, uncertainty, and divergence of opinion. The Journal of Finance 32(4), 1151–1168.
Nagel, S. (2005). Short sales, institutional investors and the cross-section of stock returns. Journal of Financial Economics 78(2), 277–309.
- Nissim, D. and S. Penman (2001). Ratio analysis and equity valuation: From research to practice. Review of Accounting Studies 6(1), 109–154.
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- Panel I. 1996 Panel II. 2004 Low Duration High Duration Low Duration High Duration Adolph Coors EA Industries Adolph Coors Enzo Biochem Continental Peoplesoft Continental Adobe Systems Chesapeake America Online Chesapeake Neurocrine Bioscs United Industrial Symantec General Motors Penwest Pharma Amcast Industrial McAfee SCS Transportation Martek Bioscs Table A.2: Fama & French 3 Factor Loadings of 10 Portfolios sorted on Duration This table reports time series factor loadings (β) for the Fama & French three-factor model for ten portfolios sorted on duration (Dur) with OLS standard errors in parentheses.
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Parker, J. and C. Julliard (2005). Consumption risk and the cross section of expected returns. Journal of Political Economy 113(1), 185–222.
Schulz, F. (2015). On the timing and pricing of dividends: Revisiting the term structure of the equity risk premium. Technical report, Unpublished manuscript, University of Washington.
Shumway, T. (1997). The delisting bias in CRSP data. The Journal of Finance 52(1), 327–340.
- Skinner, D. J. and R. G. Sloan (2002). Earnings surprises, growth expectations, and stock returns or don’t let an earnings torpedo sink your portfolio. Review of Accounting Studies 7(2-3), 289–312.
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Stambaugh, R. F., J. Yu, and Y. Yuan (2012). The short of it: Investor sentiment and anomalies. Journal of Financial Economics 104(2), 288–302.
Stambaugh, R. F., J. Yu, and Y. Yuan (2015). Arbitrage asymmetry and the idiosyncratic volatility puzzle. The Journal of Finance 70(5), 1903–1948.
- The sample period is July 1965 to December 2010 due to the availability of the sentiment index.
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- The sample period is June 1982 to June 2009 due to the availability of the I/B/E/S data. Low Dur D2 D3 D4 D5 D6 D7 D8 D9 High Dur D1–D10 Panel A. Long Term Earnings Growth Forecasts LT G t 13.08 13.53 14.30 15.12 15.34 16.29 16.92 18.22 20.15 25.73 −12.65 LT G t+1 12.96 13.41 14.07 14.61 15.01 15.67 16.30 17.29 18.98 23.44 −10.48 LT G t+2 12.92 13.34 13.95 14.34 14.54 15.26 15.84 16.55 17.87 21.50 −8.58 LT G t+3 12.83 13.11 13.72 14.03 14.18 14.87 15.30 15.77 17.08 19.96 −7.13 LT G t+4 12.92 12.75 13.37 13.68 13.82 14.33 14.82 15.19 16.31 18.75 −5.83 Panel B. Realized 5
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van Binsbergen, J. H. and R. S. Koijen (2015). The term structure of returns: Facts and theory. Unpublished manuscript, Wharton.
van Binsbergen, J., M. Brandt, and R. Koijen (2012). On the timing and pricing of dividends. American Economic Review 102(4), 1596–1618.
van Binsbergen, J., W. Hueskes, R. Koijen, and E. Vrugt (2013). Equity yields. Journal of Financial Economics 110(3), 503–519.
- Wang, C. (2014). Institutional holding, low beta and idiosyncratic volatility anomalies. Unpublished manuscript, Yale SOM .
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- Weber, M. (2015). Nominal rigidities and asset pricing. Unpublished manuscript, University of Chicago.
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- Year ÃÂDur,M = −29.17% A n nu al R etu rn [%] Duration Market This figure plots annual long-short excess returns based on 10 cash flow duration sorted portfolios (blue line) and the market excess return (red dash-dotted line). I sort all common stocks listed on NYSE, AMEX, and NASDAQ at the end of June each year t from 1963 to 2013 into deciles based on duration for all firms with fiscal years ending in year t-1. I weight returns equally and include delisting returns.
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