Why is Long-Horizon Equity Less Risky? A Duration-Based Explanation of the Value Premium

By Martin Lettau, Jessica A. Wachter. 2007

534 citations recorded by the source corpus.

Subfields: Accounting, Finance, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/62d039912235f98f97629f671dd6d060f2bf16ee

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Citations in the corpus

Average Idiosyncratic Volatility in G7 Countries (2004, background): “Lettau and Wachter (2006) develop a partial equilibrium model to illustrate that a distinction between the discount-rate shock and the cash-flow shock can explain the value premium.”
Habit formation, the cross section of stock returns and the cash-flow risk puzzle (2010, methodology): “First, Santos and Veronesi (2006) and Lettau and Wachter (2007) investigate the effect that cross-sectional differences in cash-flow duration (as defined by the expected dividend growth) have on the cross-section of expected returns. They both find that assets with low duration have high expected re”
Cash Flow Duration and the Term Structure of Equity Returns (2018, unknown): “Diether, Malloy, and Scherbina (2002) empirically test the Miller (1977) hypotheses.”
A Theory of Firm Characteristics and Stock Returns: The Role of Investment-Specific Shocks (2012, unknown): “A downward-sloping term structure of risk premia is consistent with the models of Lettau and Wachter (2007) and Nakamura, Steinsson, Barro, and Ursa (2010). A key feature of both of these models is that negative shocks to dividends are associated with subsequent increases in expected dividend growth”
The Cross-Section and Time-Series of Stock and Bond Returns (2017, unknown): “See also Lettau and Wachter (2007). Recall the log-linearized stock return expression for security or portfolio i: r t+1 = κ i 0 + ∆d i t+1 + pd i t+1 − κ i 1pd i t.”
Takeovers and the Cross-Section of Returns (2009, unknown): “…in the economy at time t by dt and use a simple model of payout growth that follows the process:9 dt+1 = dt + σd εd,t+1, (4) 9 This can be viewed as a simplified version of the dividend growth model used, for example, by Campbell (1991), Bansal and Yaron (2004), and Lettau and Wachter (2005).”
Non-monetary news in central bank communication (2018, result): “In particular, we abstract from the fact that central banks may exert significant effect on asset prices outside of the public communication events, as suggested by the findings of Lucca and Moench (2015) and Cieslak et al.”
Identifying Expectation Errors in Value/Glamour Strategies: A Fundamental Analysis Approach (2012, unknown): “…value and growth stocks possess differential sensitivities to time-varying macroeconomic risks (e.g., Vassalou 2003;Petkova and Zhang 2005;Zhang 2005; Lettau and Wachter 2007;Cohen, Polk, and Vuolteenaho 2009; Da and Warachka 2009; Campbell, Polk, and Vuolteenaho 2010;Santos and Veronesi 2010).”
The Declining Equity Premium: What Role Does Macroeconomic Risk Play? (2008, unknown): “Kim and Nelson (1999) and McConnell and Perez-Quiros (2000) were the rst to formally identify structural change in the volatility of U.”