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Equity Duration, Growth Options and Asset Pricing

  • Author(s): Cornell, Bradford
  • et al.
Abstract

Because much of the value of equity depends on the option characteristics of investment projects, it is not feasible to calculate equity duration directly. As a result, recent literature has focused on estimating equity duration empirically. By using 25 size and book-to-market portfolios, this paper shows that estimates of equity duration are critically dependent on the specifications of the regression model used to estimate equity duration. In particular, including all three Fama-French factors in the regression can have a dramatic impact on the estimate coefficients.

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