A Total Differential Approach to Equity Duration

A New Measure of Equity Duration: The Duration-Based Explanation of the Value Premium Revisited

“…Similar to bond duration, equity duration is the cash-flow weighted average time at which shareholders receive the cash flows from their investment in a company's share. In continuous time, Leibowitz et al (1989) …”

“…In contrast, stocks of mature companies exhibiting high dividend-price ratios (such as utility companies) are short-duration stocks. Leibowitz et al (1989) also propose an alternative derivation of equity duration as a share's price sensitivity to changes in the discount rate or, equivalently, the company's cost of capital. Start from the general present value formula for a share…”

“…5 Leibowitz et al (1989) note that cost of capital and growth rate are not independent from each other, such that a simple comparative statics analysis can be misleading.…”

“…In a series of papers, Leibowitz (Leibowitz, 1986;Leibowitz et al, 1989;Leibowitz and Kogelman, 1993) presents first attempts to estimate an equity duration for individual firms. Other recent studies include Cohen (2002), Hamelink et al (2002), Dechow et al (2004), Lewin et al (2007), and Shaffer (2007).…”

Constructing a GDP‐based index for use as a benchmark

“…To compare with other works, we display in Figure 8 the duration of the abovementioned benchmark plotted alongside that of the S&P500 index, the latter estimated 197319751977197919811983198519871989199119931995199719992001200320052007Blitzer et al (2008 This Work…”