Equity Duration

52 Pages Posted: 3 Feb 2021

See all articles by Gary Mullins

Gary Mullins

University of Oxford Mathematical Institute; BlackRock Inc

Date Written: July 6, 2020


The concept of bond duration was originally introduced by Macaulay (1938) and nowadays is well- established in the fixed-income literature. In this paper, I lift the same concepts from the fixed-income asset class and apply them to equities. I derive three candidate models for estimating the duration of a stock. The models are vastly different in their theoretical underpinnings, yet there is strong empirical evidence of positive co-movements between all three models in my sample. Furthermore, I investigate the relationship between the equity duration factor and various common equity factors. Empirical evidence suggests that low-duration stocks are also high-value, high-profitability, low-investment and low-risk stocks. In particular, there is a strong link between duration and the classical value factor – both theoretically and empirically. Importantly, however, the correspondence between the two factors is not one-to-one in my sample. I perform numerous empirical tests suggesting that a duration strategy out-performed a value-strategy in the period following the Great Financial Crisis (2007–08).

Keywords: duration, asset pricing, cross-section of stock returns, factor model

JEL Classification: M41, G12, G14

Suggested Citation

Mullins, Gary, Equity Duration (July 6, 2020). Available at SSRN: https://ssrn.com/abstract=3742725 or http://dx.doi.org/10.2139/ssrn.3742725

Gary Mullins (Contact Author)

University of Oxford Mathematical Institute ( email )

Radcliffe Observatory, Andrew Wiles Building
Woodstock Rd
Oxford, Oxfordshire OX2 6GG
United Kingdom

HOME PAGE: http://https://www.linkedin.com/in/gary-mullins/

BlackRock Inc ( email )

Drapers Gardens
12 Throgmorton Ave
London, EC2N 2DL
United Kingdom

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