Research: The Swoon in June

The preferred share market did very poorly in June 2008 – not just in terms of return, but, what’s worse, in terms of theory! Look for the Research Link!

Bonus! Several paragraphs needed to be hastily revised (and the charts renumbered!) to meet space restrictions:

Update: The article states:

A certain amount of algebra starting from Equation (3) of the article “Modified Duration” in CMS, May 2007 leads to the conclusion that the Macaulay Duration of a perpetual annuity with a yield per period of “r” is (1+r)/r. Therefore, from Equation (2) of that article, the Modified Duration (which measures the sensitivity of price to yield changes) is simply 1/r.

The algebra is linked in the post PerpetualDiscount Duration Calculation.

3 Responses to “Research: The Swoon in June”

  1. […] are times – such as June of this year – when everything goes wrong. The market doesn’t just behave in a manner differently from […]

  2. […] a change in the Implied Volatility of the embedded call option in StraightPerpetuals – as was the case in June 2008. Accordingly, the first step is to compare the month’s performance of individual […]

  3. […] a change in the Implied Volatility of the embedded call option in StraightPerpetuals – as was the case in June 2008. Accordingly, we compare the month’s performance of individual DeemedRetractible issues with […]

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