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Bridge over ocean
1 May 1995 Financial Analysts Journal Volume 51, Issue 3

A Note on the Measurement of Equity Duration and Convexity

  1. William J. Hurley
  2. Lewis D. Johnson

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.

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