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Macaulay Duration

AnalyticsTrade Team
AnalyticsTrade Team Last updated on 26 Apr 2023

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Macaulay Duration

Macaulay duration is a measure of the sensitivity of the price of a fixed-income investment to changes in interest rates. It is named after the British mathematician and economist Frederick Macaulay, who developed the concept in 1938. The Macaulay duration of a bond is the weighted average of the times until each cash flow is received, where the weights are the present values of the cash flows. It is expressed in years and is a measure of the average life of a bond. The Macaulay duration of a bond is inversely related to the bond’s price volatility; the longer the duration, the more sensitive the bond is to changes in interest rates.

History of Macaulay Duration

Macaulay duration was first introduced by Frederick Macaulay in 1938 in his book, The Movement of Interest Rates and Prices. Macaulay was a British mathematician and economist who was interested in the relationship between interest rates and bond prices. He developed the concept of Macaulay duration as a way to measure the sensitivity of a bond’s price to changes in interest rates. Macaulay duration has since become a widely used tool in the analysis of fixed-income investments.

Table of Comparisons

Duration Price Volatility
Short Low
Long High

Summary

Macaulay duration is a measure of the sensitivity of the price of a fixed-income investment to changes in interest rates. It is expressed in years and is a measure of the average life of a bond. The Macaulay duration of a bond is inversely related to the bond’s price volatility; the longer the duration, the more sensitive the bond is to changes in interest rates. For more information about Macaulay duration, you can visit websites such as Investopedia, The Balance, and Morningstar.

See Also

  • Yield to Maturity
  • Modified Duration
  • Effective Duration
  • Convexity
  • Duration Gap
  • Key Rate Duration
  • Option-Adjusted Duration
  • Risk-Adjusted Duration
  • Cash Flow Duration
  • Effective Convexity

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