Performance of the Implied Equity Duration in Small Stock Markets

Previous evidence in the US stock market shows that when the implied equity duration is estimated using industry-specific parameters, significant differences arise in their absolute and relative values and even in the ranking of these estimations. In this paper, we check the robustness of these results when we move to a smaller stock market, as is the Spanish. In addition, we conduct industry and size analyses to take a close look at the differences between and within these groups of firms. The results show changes in the implied equity duration when we move to an industry-specific estimation approach. These changes occur not only in the average but also in risk ranking, identifying as high-risk firms some that were previously identified as low-risk firms and vice versa. We conclude that for the firms listed on the Spanish stock market, significant differences arise in the implied equity duration estimations when we consider industry-specific parameters, suggesting that we are faced with an actual new equity duration measure. This finding is in line with previous evidence found for the US stock market.