Elroy Dimson

University of Cambridge | Cam · Cambridge Judge Business School

The authors' 2012 article on the Norway model spotlighted that country's sovereign wealth fund. They argued that Norway provides a coherent and compelling approach to managing long-term pools of assets. Since then, the Norwegian Government Pension Fund has grown in scale and complexity, and its structure has evolved. Meanwhile, other models for ass...

University endowments invest for future generations, so their strategy should reflect their long horizon. We researched whether they really do behave like long-term investors. We examined the behavior of US endowments since 1945 and drew comparisons with earlier periods. Using a long-run dataset on 12 major universities, we examined their preferenc...

The risk-return characteristics of art as an asset have been previously studied through aggregate price indexes. By contrast, we examine the long-run buy-and-hold performance of an actual portfolio, namely, the collection of John Maynard Keynes. We find that its performance has substantially exceeded existing estimates of art market returns. Our an...

Should investors put money into ground‐breaking industries? Or will they find that their enthusiasm is more likely to entice them into a market bubble that will soon burst? By Elroy Dimson, Paul Marsh and Mike Staunton

We need to look at investments over many decades to see past all the ups and downs, say Elroy Dimson, Paul Marsh and Mike Staunton

We study the nature of and outcomes from coordinated engagements by a prominent international network of long-term shareholders cooperating to influence firms on environmental and social issues. We find a two-tier engagement strategy, combining lead investors with supporting investors, is effective in successfully achieving the stated engagement go...

Which stockmarket investments do best? Elroy Dimson, Paul Marsh and Mike Staunton seek the answers

The history of stock markets reflects the history of the world. The past century has seen spectacular change. By Ben Laurance

Factor investing is popular, and its adoption is accelerating. One reason it is increasingly being embraced is that portfolio return expectations seem to be evidence based. However, much of the so-called evidence consists of repeated analysis of the very datasets used to derive an investment model in the first place. To mitigate this trap, the auth...

JM Keynes is arguably the most famous economist of all time, but what of his own investing activity? David Chambers and Elroy Dimson learn some lessons from his mixed legacy

We talk to three experts in asset prices, who summarise the pros and cons of investing in fine wine

We analyze an extensive proprietary database of corporate social responsibility engagements with U.S. public companies from 1999–2009. Engagements address environmental, social, and governance concerns. Successful (unsuccessful) engagements are followed by positive (zero) abnormal returns. Companies with inferior governance and socially conscious i...

The consensus view of the influential economist John Maynard Keynes is that he was a stellar investor. We provide an extensive quantitative appraisal of his performance over a quarter century and present detailed analysis of his archived trading records. His top-down approach initially generated disappointing returns with no evidence of any market-...

Using historical price records for Bordeaux Premiers Crus, we examine the impact of aging on wine prices and the long-term investment performance of fine wine. In line with the predictions of an illustrative model, young maturing wines from high-quality vintages provide the highest financial returns. Past maturity, famous châteaus deliver growing n...

The US endowment model is an approach to investing popularized by Yale University that emphasizes diversification and active management of equity-oriented, illiquid assets. The writings of the British economist John Maynard Keynes were a considerable influence on the investment philosophy of Yale's chief investment officer, David Swensen. How did K...

The authors reviewed the long-term investment performance of collectibles and found that these so-called emotional assets have outperformed government bonds, Treasury bills, and gold over the long run. However, the costs of trading in these markets are high and an investor faces many dangers and pitfalls. Emotional assets are particularly attractiv...

Credit Suisse Global Investment Returns Sourcebook 2014 147 CHAPTER 20 Portugal The data for Portuguese equities come from a three-year study by Maria Eugénia Mata and José da Costa; see da Costa, Mata, and Justino (2012) for an interim report. They have created an all-share weekly index for the Lisbon stock exchange starting from 3 January 1900 (h...

Country profiles_51 Portugal Land of discoverors In the 15th century, during The Age of the Discoveries, a rudimentary form of centralized market existed in Lisbon. It solved two problems: how to assemble the large amounts of money necessary to finance the fleets and the voyages; and how to agree the premia for insurance contracts to cover the asso...

Founded in 1441, King's College was one of Cambridge University's wealthiest Colleges, endowed with a vast agricultural portfolio. John Maynard Keynes was appointed bursar just after WWI and initiated a major reallocation to equities, an innovation at least as radical as the late 20th century commitment to illiquid assets by Harvard and Yale. Keyne...

Founded in 1441, King’s College was one of Cambridge University’s wealthiest colleges, endowed with a vast agricultural portfolio. John Maynard Keynes was appointed bursar just after WWI and initiated a major reallocation to equities, an innovation at least as radical as the late 20th century commitment to illiquid assets by Harvard and Yale. Keyne...

John Maynard Keynes made a major contribution to the development of professional investment management. Based on detailed archival research at King's College, Cambridge, we describe Keynes' investment philosophy, his investment performance, and the evolution of his investment approach as the manager of a large educational endowment. His portfolios...

John Maynard Keynes made a major contribution to the development of professional investment management. Based on detailed archival research at King’s College, Cambridge, we describe Keynes’ investment philosophy, his investment performance, and the evolution of his investment approach as the manager of a large educational endowment. His portfolios...

Using historical price records for Premiers Crus Bordeaux, we examine the impact of aging on wine prices and the long-term investment performance of fine wine. In line with the predictions of an illustrative model, young maturing wines from high-quality vintages provide the highest financial returns. Past maturity, famous châteaus deliver growing n...

We assess the long-term financial returns from high-quality collectible real assets, and review the unique risks that are associated with such investments. Over the period 1900-2012, art, stamps, and musical instruments (violins) have appreciated at an average annual rate of 6.4%-6.9% in nominal terms, or 2.4%-2.8% in real terms. Despite the simila...

Keynes made a major contribution to the development of professional asset management. Combining archival research with modern investment analysis, we evaluate John Maynard Keynes’ investment philosophy, strategies, and trading record, principally in the context of the King’s College, Cambridge, endowment. His portfolios were idiosyncratic and his a...

Using an extensive proprietary dataset of corporate social responsibility (CSR) engagements, we document positive market reactions to engagements with US public firms over 1999-2009. The average one-year abnormal return after initial engagement is 2%, with 4% for successful engagements whereas there is no market reaction to unsuccessful ones. The p...

We examine the extent to which the discount on closed-end funds can be explained by the quality of a fund's management. Using a comprehensive sample of British funds, we use Sharpe's (1992) returns-based style analysis to measure manager quality after adjusting for factor exposure. We find no evidence of performance persistence amongst closed-end f...

We analyze an extensive proprietary database of corporate social responsibility engagements with U.S. public companies from 1999–2009. Engagements address environmental, social, and governance concerns. Successful (unsuccessful) engagements are followed by positive (zero) abnormal returns. Companies with inferior governance and socially conscious i...

The Norwegian Government Pension Fund Global was recently ranked the largest fund on the planet. It is also highly rated for its professional, low-cost, transparent, and socially responsible approach to asset management. Investment professionals increasingly refer to Norway as a model for managing financial assets. We present and evaluate the strat...

We update our global evidence on the long-term realized equity risk premium, relative to both bills and bonds, in 19 different countries. Our study now runs from 1900 to the start of 2011. While there is considerable variation across countries, the realized equity risk premium was substantial everywhere. For our 19-country World index, over the ent...

This paper uses stamp catalogue prices to investigate the returns on British collectible postage stamps over the period 1900–2008. We find an annualized return on stamps of 7.0% in nominal terms, or 2.9% in real terms. These returns are higher than those on bonds but below those on equities. The volatility of stamp prices approaches that of equitie...

Cambridge University 1 and London Business School 2 respectively 3 Abstract: John Maynard Keynes was an active investor and can claim to be the father of equity investing. Yet, the existing literature has only cursorily examined this aspect of his life. By combining careful archival research with modern portfolio analysis, we evaluate Keynes's inve...

A central measure of the efficiency of the Initial Public Offering (IPO) market is the extent to which issues are underpriced. We present new and comprehensive evidence covering British IPOs since World War I. During the period from 1917 to 1945, public offers were underpriced by an average of only 3.80%, as compared to 9.15% in the period from 194...

Momentum - the tendency for stock returns to trend in the same direction - is a major puzzle. Fama and French describe it as the "premier anomaly". However, momentum could still be a regularity that does not endure out of sample. We test whether it is a persistent feature of financial markets by studying UK stock returns since 1900, as well as inte...

There is a profound linkage between the quality of a university and its financial resources. The universities of Oxford and Cambridge rank among the world's finest educational institutions, and are able to draw on invested assets that are large by any standards. Endowment Asset Management explores how the colleges that comprise these two great univ...

There is a profound linkage between the quality of a university and its financial resources. The universities of Oxford and Cambridge rank among the world's finest educational institutions, and are able to draw on invested assets that are large by any standards. This book explores how the colleges that comprise these two universities make their inv...

There is a profound linkage between the quality of a university and its financial resources. The universities of Oxford and Cambridge rank among the world's finest educational institutions, and are able to draw on invested assets that are large by any standards. This book explores how the colleges that comprise these two universities make their inv...

There is a profound linkage between the quality of a university and its financial resources. The universities of Oxford and Cambridge rank among the world's finest educational institutions, and are able to draw on invested assets that are large by any standards. This book explores how the colleges that comprise these two universities make their inv...

There is a profound linkage between the quality of a university and its financial resources. The universities of Oxford and Cambridge rank among the world's finest educational institutions, and are able to draw on invested assets that are large by any standards. This book explores how the colleges that comprise these two universities make their inv...

There is a profound linkage between the quality of a university and its financial resources. The universities of Oxford and Cambridge rank among the world's finest educational institutions, and are able to draw on invested assets that are large by any standards. This book explores how the colleges that comprise these two universities make their inv...

There is a profound linkage between the quality of a university and its financial resources. The universities of Oxford and Cambridge rank among the world's finest educational institutions, and are able to draw on invested assets that are large by any standards. This book explores how the colleges that comprise these two universities make their inv...

There is a profound linkage between the quality of a university and its financial resources. The universities of Oxford and Cambridge rank among the world's finest educational institutions, and are able to draw on invested assets that are large by any standards. This book explores how the colleges that comprise these two universities make their inv...

There is a profound linkage between the quality of a university and its financial resources. The universities of Oxford and Cambridge rank among the world's finest educational institutions, and are able to draw on invested assets that are large by any standards. This book explores how the colleges that comprise these two universities make their inv...

There is a profound linkage between the quality of a university and its financial resources. The universities of Oxford and Cambridge rank among the world's finest educational institutions, and are able to draw on invested assets that are large by any standards. This book explores how the colleges that comprise these two universities make their inv...

There is a profound linkage between the quality of a university and its financial resources. The universities of Oxford and Cambridge rank among the world's finest educational institutions, and are able to draw on invested assets that are large by any standards. This book explores how the colleges that comprise these two universities make their inv...

There is a profound linkage between the quality of a university and its financial resources. The universities of Oxford and Cambridge rank among the world's finest educational institutions, and are able to draw on invested assets that are large by any standards. This book explores how the colleges that comprise these two universities make their inv...

There is a profound linkage between the quality of a university and its financial resources. The universities of Oxford and Cambridge rank among the world's finest educational institutions, and are able to draw on invested assets that are large by any standards. This book explores how the colleges that comprise these two universities make their inv...

There is a profound linkage between the quality of a university and its financial resources. The universities of Oxford and Cambridge rank among the world's finest educational institutions, and are able to draw on invested assets that are large by any standards. This book explores how the colleges that comprise these two universities make their inv...

There is a profound linkage between the quality of a university and its financial resources. The universities of Oxford and Cambridge rank among the world's finest educational institutions, and are able to draw on invested assets that are large by any standards. This book explores how the colleges that comprise these two universities make their inv...

There is a profound linkage between the quality of a university and its financial resources. The universities of Oxford and Cambridge rank among the world's finest educational institutions, and are able to draw on invested assets that are large by any standards. This book explores how the colleges that comprise these two universities make their inv...

We create and analyse a long-term history for various types of equity investment that are protected against downside risk. To do this, we estimate the performance achievable by employing modern investment technologies and markets, such as purchasing or dynamically creating portfolio insurance. We report the returns and risks that would have been ex...

We use a new database of long-run stock, bond, bill, inflation, and currency returns to estimate the equity risk premium for 17 countries and a world index over a 106-year interval. Taking U.S. Treasury bills (government bonds) as the risk-free asset, the annualised equity premium for the world index was 4.7% (4.0%). We report the historical equity...

Every finance professional employs the concept of market efficiency. The theory, evidence and counterevidence focus on a couple of dozen highly influential articles published during the twentieth century. We summarise the origins of and interlinkages between these contributions to the history of finance.

We examine a set of equity index-linked bonds that provide the same payoff as an investment in an equity index, but are relatively illiquid. We demonstrate that these securities sell at a discount relative to their underlying value and hence have higher expected returns. We show that this apparent mispricing can be attributed to the illiquidity of...

We address the tendency of many investors to overestimate the rewards and underestimate the risks of investing in stocks over the long term - that is, investors' irrational optimism. In particular, we examine the widely held belief that stocks are a "safe" investment for the long run. The probability of experiencing a real loss on equities depends...

Using a new data set of accounting information merged with share price data, we found a strong value premium in the United Kingdom for the period 1955-2001. It existed among small-capitalization and large-capitalization stocks. But small-cap stock managers who wish to capture the higher expected returns face some challenges. We show that rebalancin...

The size of the equity risk premium-the incremental return that shareholders require to hold risky equities rather than risk-free securities-is a key issue in corporate finance. Financial economists generally measure the equity premium over long periods of time in order to obtain reliable estimates. These estimates are widely used by investors, fin...

Using a new dataset of accounting information merged with share price data we find a strong value premium in the U.K. for the period 1955-2001. It exists among small-caps as well as among large-caps. However, there are challenges for small-cap managers wishing to capture these higher expected returns. We show that rebalancing-induced portfolio turn...

Improvements in technology and increasing emphasis on performance have led many investors to monitor the performance of fund managers on a high frequency basis: quarterly, monthly, or more often. We examine the impact that frequency of performance measurement has on the probability distribution of observed outcomes. With more frequent monitoring of...

Investors have too often extrapolated from the American experience and from relatively recent evidence. In the 1950s, who but the most rampant optimist would have dreamed that, over the next fifty years, the real return on equities would be 9 percent per year? Yet this is exactly what happened in the US stock market. In this study we extend our kno...

Investors have too often extrapolated from recent experience. In the 1950s, who but the most rampant optimist would have dreamt that over the next fifty years the real return on equities would be 9% per year? Yet this is what happened in the U.S. stock market. The optimists triumphed. However, as Don Marquis observed, an optimist is someone who nev...

Improvements in technology and increasing emphasis on performance have led many investors to monitor the performance of fund managers on a high-frequency basis: quarterly, monthly, or more frequently. The authors examine the impact that frequency of performance measurement has on the probability distribution of observed outcomes. With more frequent...

Introduction We perform a historical analysis of value versus growth in the UK stock market. Our analysis employs a new data set of balance sheets for all listed UK firms back to 1953. It enables us to look at value effects across the whole population of stocks listed on the London Stock Exchange from 1955-2000. Our data set is free of survivorship...

To maintain coverage of their target universe, stock market indices must periodically be rebalanced. This can give rise to turnover that is large, even by the standards of actively managed portfolios. High turnover is not only costly; it can also have a marked impact on reported returns. We demonstrate the problems posed by index rebalancing throug...

We present and analyze new monthly index series for U.K. financial assets, covering equities, bonds, bills, and inflation. The data are consistent with the CRSP/Ibbotson series for the United States. We use our indices to estimate equity and bond premia and to make international comparisons, especially with the United States, Germany, and Japan. We...

The single most important contemporary issue in finance is the equity risk premium. This drives future equity returns, and is the key determinant of the cost of capital. The risk premium – the expected reward for bearing the risk of investing in equities, rather than in low-risk investments such as bills or bonds – is usually estimated from histori...

Theory on the pricing of financial assets can be traced back to Bernoulli's famous St Petersburg paper of 1738. Since then, research into asset pricing and derivative valuation has been influenced by a couple of dozen major contributions published during the twentieth century. These seminal works have underpinned the key ideas of mean–variance opti...

We examine the extent to which the discount on closed-end funds can be explained by the quality of a fund's management. Using a comprehensive sample of British funds, we use Sharpe's (1992) returns-based style analysis to measure manager quality after adjusting for factor exposure. We find no evidence of performance persistence amongst closed-end f...

Many researchers have uncovered empirical regularities in stock market returns. If these regularities persist, investors can expect to achieve superior performance. Unfortunately, nature can be perverse. Once an apparent anomaly is publicised, only too often it disappears or goes into reverse. The latter seems to have happened to the small firm pre...

This survey reviews the evolving literature on closed-end fund discounts. Many studies have attempted to explain the existence and the behavior of the discount to net asset value, emphasizing biases in the calculation of NAV, agency costs, tax-timing options and market segmentation. None has been able to provide a full explanation. As a result, som...

Every finance professional employs the concept of market efficiency. The theory, evidence and counter-evidence focus on a couple of dozen highly influential articles published during the twentieth century. We summarise the origins of and interlinkages between these contributions to the history of finance.

This paper examines the performance of the leading methods for setting capital requirements for securities firms' trading books. Tests are conducted on a large sample of UK equity market makers' books over a substantial number of periods of equity market stress from 1985 to 1995. The comprehensive and building-block approaches, favoured by US and E...

Regulatory authorities set capital requirements to cover the position risk of securities firms and to protect against losses arising from fluctuations in the value of their holdings. The requirements may be set using the comprehensive approach required by the U.S. Securities and Exchange Commission, the building-block approach required by the Europ...