Estimating the Interest Rate Sensitivity of Mixed-Asset Portfolios

Abstract

The purpose of this article is to show how the different measures of duration can be employed to estimate the interest rate sensitivity of a mixed-asset portfolio. The authors start by reviewing alternative measures of duration, indicating the appropriate measures to use for different asset classes. They then discuss the calculation of equity duration, provide examples of equity durations for several widely traded equity securities, and then illustrate a possible computation of duration for a mixed asset portfolio. Having discussed the limitations of this methodology, they observe in the conclusion that the relationship between changes in interest rates and financial asset returns has been of significant interest to investment professionals for many years.