A comparison of UK equity and property duration

Hamelink, F., MacGregor, B., Nanthakumaran, N. and Orr, A. (2002) A comparison of UK equity and property duration. Journal of Property Research, 19(1), pp. 61-80. (doi: 10.1080/09599910110079631)

Abstract

This paper considers the duration of property and equity. A general formula for duration of asset classes is derived. It is shown that calculations which assume, usually implicitly, that the flow-through of inflation to cash flow is zero, produce misleadingly high durations for property and equities. These are typically in the range 15 to 25 years. Simulations using the formulae show that property has some bond-like characteristics. The results indicate that, for realistic flow-through rates, equities have a higher duration than property. The flow-through rate is the most important variable in the estimation of equities. Using historical data, equity duration is estimated at 8.65 years and property’s at 3.15 years. These are substantially lower than those commonly cited. If these values can be substantiated, and if higher values are used in practice, portfolio immunisation strategies may need to be reconsidered.

• Item Type: Articles
• Additional Information: This is an electronic version of an article published in Hamelink, F., MacGregor, B., Nanthakumaran, N. and Orr, A. (2002) A comparison of UK equity and property duration. Journal of Property Research, 19 (1). pp. 61-80. Journal of Property Research is available online at: http://www.informaworld.com/smpp/title~db=all~content=t713735323
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Orr, Dr Allison
• Authors: Hamelink, F., MacGregor, B., Nanthakumaran, N., and Orr, A.
• College/School: College of Social Sciences > School of Social and Political Sciences > Urban Studies
• Journal Name: Journal of Property Research
• Publisher: Taylor and Francis
• ISSN: 0959-9916
• ISSN (Online): 1466-4453
• Copyright Holders: Copyright © 2002 Taylor and Francis
• First Published: First published in Journal of Property Research 19(1):61-80
• Publisher Policy: Reproduced in accordance with the copyright policy of the publisher