Kapie

Got it, BChadwick, thanks!
How would you go about estimating the empirical duration of the stock market (proxied by S&P 500)? I was thinking to run a multiple regression with S&P price change as my dependent variable, and (1) change in 10 year UST yield and (2) change in barclays Agg. OAS as my independent variables. The thought is that the change in OAS will capture the risk premium and the change in 10 yr yield will capture the interest rate sensitivity. Of course, there will be some (I believe minor) multicollinearity issues because rising rates eat into the firms’ profits and affect the interest coverage ratios and thus, the OAS levels, but I think that should not be a big issue for Barclays Agg. Index as it includes investment grade bonds that have relatively low leverage levels. What do you think about this methodology? Would you through in the Dividend Payout ratio as well to capture the effect of rates on discounted cash dividends? Any other fields/ideas? Thanks a lot!