A Unified Duration-Based Explanation of the Value, Profitability and Investment Anomalies

We use the cash flow duration to unify the value, profitability and investment premiums in a risk-based framework: short duration firm associates with the high book-to-market ratio, high profitability, and low investment, hence high return while long duration firm has a low book-to-market ratio, low profitability, and high investment, hence lower return. Duration predicts stock return significantly in the cross-section and can subsume the value, profitability, and investment premiums. A duration-based factor model with factors that capture returns associated with duration and duration transition shows strong ability in explaining the value, profitability, and investment-related factors and many other related anomalies.