A note on Macaulay’s formula for duration

Osborne, Mike (2011) A note on Macaulay’s formula for duration. SSRN.

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Macaulay duration approximates the yield elasticity of bond price. Since its introduction in 1938 researchers have sought a more accurate formula. This article demonstrates Macaulay’s formula gives accurate results if applied appropriately. A bond with maturity n has n solutions for yield, one orthodox and (n-1) unorthodox. Conventional analysis ignores the distinction, which means a shift in yield shifts all yields at once. In contrast, an other-things-being-equal shift in the orthodox yield, holding the unorthodox yields constant, permits the successful application of Macaulay’s formula. This finding questions the conventional focus on the orthodox yield alone.

Item Type: Article
Schools and Departments: University of Sussex Business School > Business and Management
Depositing User: Michael Osborne
Date Deposited: 24 Apr 2013 11:16
Last Modified: 21 Oct 2014 13:24
URI: http://sro.sussex.ac.uk/id/eprint/25358
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