Stock duration of an equity stock is the percentage change in price in response to a 1% change in the long-term return that the stock is priced to deliver.

Duration

As per Dividend Discount Model

Dividend Discount Model

The dividend discount model is a way of valuing a company based on the theory that a stock is worth the discounted sum of all of its future dividend payments. In other words, it is used to evaluate stocks based on the net present value of the future dividends. Dividend discount model is a tool...

: Formula for the duration of stock is as follows-

where

• is the duration of stock under the DDM model
• is the discount rate
• is the expected growth rate in perpetuity

Modified duration

For the stock market as a whole, the modified duration is simply the price/dividend ratio, which for the S&P 500

S&P 500

The S&P 500 is a free-float capitalization-weighted index published since 1957 of the prices of 500 large-cap common stocks actively traded in the United States. The stocks included in the S&P 500 are those of large publicly held companies that trade on either of the two largest American stock...

was about 62 in February 2004.

External links

• Hussman Funds - Weekly Market Comment: February 23, 2004 - Buy-and-Hold For the Duration?