Cohen, Ruben D (2009): Constructing a GDP-based Index for Use as Benchmark. Forthcoming in: Wilmott Journal
Download (186Kb) | Preview
The gross domestic product [GDP] is a fundamental economic indicator that is frequently used as a benchmark for local equity indices. The widespread appeal of this association is understandable because an equity index, especially if broad, could, like the GDP, also manifest the state of the economy. At the same time, however, the validity of a direct relation between the two is debatable since the GDP is known to be characteristically different from the typical equity index, however broad.
In this work, we review some of the key elements that separate the GDP from a typical broad equity index in order to explain why the two cannot be compared directly with each other. We then incorporate a readily available mapping technique to create a GDP-based index that circumvents their inherent disparities and, thus, enable us to benchmark one against the other.
|Item Type:||MPRA Paper|
|Original Title:||Constructing a GDP-based Index for Use as Benchmark|
|Keywords:||GDP; equity index; benchmark; relative valuation; duration;|
|Subjects:||G - Financial Economics > G0 - General > G00 - General|
|Depositing User:||ruben cohen|
|Date Deposited:||10. Nov 2009 00:18|
|Last Modified:||12. Feb 2013 20:08|
Blitzer, D.M., S. Dash and P. Murphy (2008) “Equity Duration – Updated Duration of the S&P500”, Standard & Poor’s Publication.
Casabona, P., F. J. Fabozzi, and J. C. Francis (1984) "How to Apply Duration to Equity Analysis", The Journal of Portfolio Management 10, pp.52-54.
Cohen, R.D. (2005) “The Relative Valuation of an Equity Price Index,” Chapter 9 in The Best of Wilmott 2, P. Wilmott, Ed., John Wiley & Sons, Ltd, pp. 99-132.
Cohen, R.D. (2006) “A Var-based Model for the Yield Curve,” Wilmott Magazine, May issue, pp. 60-68.
Dechow, P.M, R.G. Sloan and M.T. Soliman (2004) “Implied Equity Duration: A New Measure of Equity Risk” Review of Accounting Studies 9, pp. 197-228.
Faugère, C. and J. Van Erlach (2006) “The Equity Premium: Consistent with GDP Growth and Portfolio Insurance”, The Financial Review 41, pp. 547-564.
Honnerová, J. (2003) “Time Series Analysis of GDP and Market Indices”, Bulletin of the Czech Econometric Society 10, pp. 35-64.
Kerschner, E.M., T.M. Doerflinger and D.B. Murphy (1999) “What is the S&P” PaineWebber Investment Policy report.
Leibowitz, M.L., E.H. Sorensen, R.D. Arnott and H.N. Hanson (1989) “A Total Differential Approach to Equity Duration”, Financial Analysts Journal 45, pp. 30-37.
Santa-Clara, P. (2004) “Discussion of ‘Implied Equity Duration: A New Measure of Equity Risk’”, Review of Accounting Studies 9, pp. 229-231.