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Duration and Security Risk

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  • Lanstein, Ronald
  • Sharpe, William F.

Abstract

Estimation and control of security risk are subjects of major theoretical and practical importance. Much of the literature in this area has focused on the risk associated with returns over a single holding period. Within this context, a great deal of attention has been devoted to estimation of security betas, which relate to coveriance with “the market,” since the well-known Capital Asset Pricing Model implies that expected returns will, in equilibrium, be related to such values. However, a number of papers [3, 7, 14] have considered “extra-market covariances,” i.e., covariances among security returns not due to common correlations with the market as a whole. Accurate estimates of such covariances are necessary for tailoring portfolios to account for differences in investors' circumstances (e.g., tax brackets) and, a fortiori, for active portfolio management designed to exploit any security mispricing.

Suggested Citation

  • Lanstein, Ronald & Sharpe, William F., 1978. "Duration and Security Risk," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 13(4), pages 653-668, November.
    • Handle: RePEc:cup:jfinqa:v:13:y:1978:i:04:p:653-668_00
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    Cited by:

    1. George G. Kaufman, 1980. "Duration, Planning Period, And Tests Of The Capital Asset Pricing Model," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 3(1), pages 1-9, March.
    2. Teplova, Tamara V. & Rodina, Victoria A., 2021. "The reinvestment risk premium in the valuation of British and Russian government bonds," Research in International Business and Finance, Elsevier, vol. 55(C).
    3. Pope, Peter F., 2010. "Bridging the gap between accounting and finance," The British Accounting Review, Elsevier, vol. 42(2), pages 88-102.
    4. Alexander Peter Groh & Oliver Gottschalg, 2008. "The Opportunity Cost of Capital of US Buyouts," NBER Working Papers 14148, National Bureau of Economic Research, Inc.
    5. Groh, Alexander P. & Gottschalg, Oliver, 2009. "The opportunity cost of capital of US buyouts," IESE Research Papers D/780, IESE Business School.
    6. Robert W. Kolb & Raymond Chiang, 1982. "Duration, Immunization, And Hedging With Interest Rate Futures," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 5(2), pages 161-170, June.
    7. Jiang, Hao & Sun, Zheng, 2020. "Reaching for dividends," Journal of Monetary Economics, Elsevier, vol. 115(C), pages 321-338.
    8. Jay B. Morrison & David H. Pyle, 1978. "Interest Rate Risk and the Regulation of Financial Institutions," NBER Working Papers 0266, National Bureau of Economic Research, Inc.
    9. Gerald R. Brown, 2000. "Duration and Risk," Journal of Real Estate Research, American Real Estate Society, vol. 20(3), pages 337-356.

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