A Note on the Measurement of Equity Duration and Convexity

The appropriate measure of equity duration (and, by extension, convexity) is a controversial matter. In 1986, Leibowitz presented empirical duration measures that are considerably shorter than those derived from a traditional dividend discount model. A class of dividend discount models developed by...

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Bibliographic Details
Published inFinancial analysts journal Vol. 51; no. 3; pp. 77 - 79
Main Authors William J. Hurley, Johnson, Lewis D.
Format Journal Article
LanguageEnglish
Published Charlottesville The Association for Investment Management and Research 01.05.1995
Taylor & Francis Ltd
Subjects
Convexity
Discount rates
Dividend discount model
Dividends
Equity
Financial advisers
Financial portfolios
Growth rate
Interest rates
Mathematical models
Modeling
Portfolio management
Studies
Yield
United States > US
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Summary:The appropriate measure of equity duration (and, by extension, convexity) is a controversial matter. In 1986, Leibowitz presented empirical duration measures that are considerably shorter than those derived from a traditional dividend discount model. A class of dividend discount models developed by Hurley and Johnson is used to try to reconcile the difference. The values derived for equity duration are intermediate between the Leibowitz and traditional measures. These models overcome the standard criticism of dividend discount models by allowing for realistic patterns of future dividend growth. Corresponding models of equity convexity developed by Johnson are used to derive equity convexity.
ISSN:0015-198X
1938-3312
DOI:10.2469/faj.v51.n3.1908