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The implied equity duration when discounting and forecasting parameters are industry specific
Author(s) -
Fullana Olga,
Nave Juan M.,
Toscano David
Publication year - 2018
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12250
Subject(s) - econometrics , equity (law) , economics , duration (music) , discounting , capital asset pricing model , financial economics , actuarial science , finance , art , literature , political science , law
We estimate the implied equity duration using industry‐specific parameters. We provide evidence that this procedure improves the ability of implied equity duration to capture stock price risk. We show that it is due to a better capture of both the market risk and residual risk of the market asset pricing model. As expected, the higher the difference in the estimates of duration, the higher the improvement in measuring price risk, but the results also show that the highest improvements are obtained when the usual implied equity duration estimation based on market parameters performs poorly as a price risk measure.