Value premium and implied equity duration in the Japanese stock market

This paper compares the performance of asset pricing models, the CAPM, the Fama-French three-factor model, and a model including a risk factor related to equity duration. To construct the duration-risk factor, we compute the implied equity duration of Japanese equity securities. We obtain the following empirical results. While growth stocks have long duration, value stocks have short duration. The duration model has similar performance for Japanese stock returns to the Fama-French model. These models have better performance than the CAPM.