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Triumph of the optimists: 101 years of global investment returns
Abstract
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 never had much experience. The authors of this book extend our experience across regions and across time. They present a comprehensive and consistent analysis of investment returns for equities, bonds, bills, currencies and inflation, spanning sixteen countries, from the end of the nineteenth century to the beginning of the twenty-first. This is achieved in a clear and simple way, with over 130 color diagrams that make comparison easy. Crucially, the authors analyze total returns, including reinvested income. They show that some historical indexes overstate long-term performance because they are contaminated by survivorship bias and that long-term stock returns are in most countries seriously overestimated, due to a focus on periods that with hindsight are known to have been successful. The book also provides the first comprehensive evidence on the long-term equity risk premium--the reward for bearing the risk of common stocks. The authors reveal whether the United States and United Kingdom have had unusually high stock market returns compared to other countries. The book covers the U.S., the U.K., Japan, France, Germany, Canada, Italy, Spain, Switzerland, Australia, the Netherlands, Sweden, Belgium, Ireland, Denmark, and South Africa. Triumph of the Optimists is required reading for investment professionals, financial economists, and investors. It will be the definitive reference in the field and consulted for years to come. © 2002 Elroy Dimson, Paul Marsh, and Mike Staunton. All rights reserved.
... 11 Barro and Ursua (2008) use returns data starting in the late 19 th century for about 30 countries using Global Financial Data (GFD) as a source. Dimson, Marsh, and Staunton (2001) and Jordà et al. (2019) cover 16 countries, starting in 1900 and 1870, respectively. All three contributions use annual data, as do Mehra and Prescott (1985), who focus on the United States, 1889-1978. ...
... To track the return performance over time, we mainly focus on arithmetic averages. This is because arithmetic returns are the benchmark measure in earlier work on long-run asset performance, for example, in the EMBI reports or in Dimson, Marsh, and Staunton (2001). For a specific period, say, ...
... Moreover, most of the earlier work on long-run returns uses bills as the benchmark, for example, Dimson, Marsh, and Staunton (2001) or Jordà et al. (2019). However, as an alternative, we also report excess returns above long-term UK or US bonds, which has been our approach so far but is less standard in the literature comparing asset classes. ...
This paper studies external sovereign bonds as an asset class. We compile a new database of 266,000 monthly prices of foreign-currency government bonds traded in London and New York between 1815 (the Battle of Waterloo) and 2016, covering up to 91 countries. Our main insight is that, as in equity markets, the returns on external sovereign bonds have been sufficiently high to compensate for risk. Real ex post returns average more than 6% annually across two centuries, including default episodes, major wars, and global crises. This represents an excess return of 3–4% above US or UK government bonds, which is comparable to stocks and outperforms corporate bonds. Central to this finding are the high average coupons offered on external sovereign bonds. The observed returns are hard to reconcile with canonical theoretical models and the degree of credit risk in this market, as measured by historical default and recovery rates. Based on our archive of more than 300 sovereign debt restructurings since 1815, we show that full repudiation is rare; the median creditor loss (haircut) is below 50%.
... In recent years, numerous studies have delved into the historical rates of return on investment in various parts of the world. In 2002, Elroy Dimson, Paul Marsh and Mike Staunton published the book Triumph of the Optimists (Dimson et al. 2002), where they examined the return on investments in a number of developed countries around the world throughout the twentieth century. They showed substantial differences in the rate of return between countries, as well as over time. ...
... In recent years, several studies in the field of financial history have therefore opted for studying the return on investment-i.e. to analyse financial performance from the perspective of the investors in the companies rather than from company declared profits (Edelstein 1970(Edelstein , 1976(Edelstein , 1982Dimson et al. 2002;Buelens and Marysse 2009;Buelens and Frankema 2015;Grossman 2015;Rönnbäck and Broberg 2019). By studying the return on investment, we implicitly assume that contemporary agents on the financial market were reasonably well informed about the company's activities over the long run, and therefore in a position to judge the value of the company. ...
... Total return on investments in various parts of the world, 1890-1969 (per cent per year, geometric mean) Sources "World" portfolio based onEdelstein's (1970) "overseas" portfolio for the decade 1890-1899, and onDimson et al. (2002) "world" portfolio for the period 1900-1969; African portfolio based onRönnbäck and Broberg (2019); Netherlands Indies portfolio based onBuelens and Frankema (2015),Table 2; for Malayan data, seeFig. 2 ...
Historical rates of return on investments have received increasing scholarly attention in recent years. Much literature has focused especially on colonies, where institutions have been argued to facilitate severe exploitation. In the present study, we examine the return on investments in an Asian colony, British Malaya, from 1889 to 1969 for a large sample of companies. Our results suggest that the return on investments in Malaya might have been among the highest in the world during the period studied. Nevertheless, this finding fits badly with theories of imperial exploitation and can only to a limited extent be explained by a higher risk premium. Instead, we argue that the main driver of the very high return on investments in Malaya was rather the substantial rise in global market prices of the output of the two main sectors of the Malayan economy, rubber and tin. The way that the process of decolonization unfolded in Malaya did, furthermore, not lead to any major nationalization of foreign-held assets, and did thereby not disrupt the return on investment in the region in the same way as decolonization did to the return on investment in some other colonies.
... The latter report returns on wealth by country and provide equally weighted and gross domestic product (GDP)weighted period averages, but they do not include a global value-weighted return time series as provided by Ibbotson, Siegel, and Love (1985) for the period 1960-1984. The groundbreaking study by Dimson, Marsh, and Staunton (2002) 2 documents annual returns for equities, long-term government bonds, and Treasury bills in sixteen countries for the 101-year period from 1900 to 2000. They also report these return series at the global level, but their data set does not contain returns of a multiasset portfolio. ...
... The real estate returns in Ibbotson, Siegel, and Love (1985) only concern the United States. Jord a et al. (2019), the first to document a long set of total returns on housing for a large number of countries, and Dimson, Marsh, and Staunton (2018a) include national private housing returns, but they do not include commercial real estate. ...
... Next, this is the first study to use an invested market-value-weighted return index for commodities. Ibbotson and Siegel (1983) use a supply-weighted return index for gold and silver, whereas commodities are not included in Jord a et al. (2019) and Dimson, Marsh, and Staunton (2002). Also, investment-grade credits are part of the Ibbotson, Siegel, and Love (1985) study, but they are not part of Dimson, Marsh, and Staunton (2002) and Jord a et al. (2019). ...
We create an annual return index for the invested global multiasset market portfolio. We use a newly constructed unique data set covering the entire market of financial investors. We analyze returns and risk from 1960 to 2017, a period during which the market portfolio realized a compounded real return in U.S. dollars of 4.45%, with a standard deviation of annual returns of 11.2%. The compounded excess return was 3.39%. We publish these data on returns of the market portfolio, so they can be used for future asset pricing and corporate finance studies.
Received March 4, 2019; editorial decision October 9, 2019 by Editor Jeffrey Pontiff. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.
... In addition, Beck and Levine (2004), using the Generalized Method of Moments (GMM) of 40 countries for the period 1976-1998, demonstrate a strong positive relationship between the stock market development and the economic growth (Beck & Levine, 2004). However, Dimson, Marsh and Staunton (2002), using a sample of stock markets returns from 1900 to 2000 for 16 developed countries, find that over long periods of time, stock market returns are negatively related to GDP growth rate (Dimson, Marsh, & Staunton, 2002). Kwon and Shin (1999) study the relationship between the Korean stock market index and GDP growth employing the Error Correction Model (ECM). ...
... In addition, Beck and Levine (2004), using the Generalized Method of Moments (GMM) of 40 countries for the period 1976-1998, demonstrate a strong positive relationship between the stock market development and the economic growth (Beck & Levine, 2004). However, Dimson, Marsh and Staunton (2002), using a sample of stock markets returns from 1900 to 2000 for 16 developed countries, find that over long periods of time, stock market returns are negatively related to GDP growth rate (Dimson, Marsh, & Staunton, 2002). Kwon and Shin (1999) study the relationship between the Korean stock market index and GDP growth employing the Error Correction Model (ECM). ...
We examine commodities and macroeconomic factors of the Korean' and Japanese' stock market performance during the period of 1993-2017. Using both Kospi and Nikkei 225 as proxy for stock market performance, we designed a Vector Error Correction Model (VECM) which integrates the econometric model in the short-and long-run. We found that the Korean and Japanese stock market reflects both macroeconomic variables and commodity prices on stock price indices. Our results reveal that each stock market index, GDP growth, inflation rate, interest rate, exchange rate, crude oil WTI price, and gold price perform a cointegration in the long-term, suggesting that Kospi and Nikkei 225 are corrected in-19.6% and-39.6% in each quarter, respectively. In addition, GDP growth, interest rate, exchange rate, oil price, and gold price affect the Kospi short-run performance, while GDP growth, interest rate, and gold price affect Nikkei 225 in the short-term. Using impulse-response function and the variance decomposition, we identified that the most significant impulse on each stock market index is its own shock, and its magnitude declines from the short-to the long-run. Our results are mostly consistent with the experience of other countries, especially Turkey and India, meaning the stock market index has been particularly affected by its own past prices. Our paper complements the literature of corporate finance by comparing the determinants of stock market performance of two Asian countries, including different robustness tests to explain the effect on Kospi and Nikkei 225 of each independent variable. For future research, the authors suggest to include a dummy variable for structural changes to increase the power of the model.
... tz et al. 2000a;Amihud 2002;Schwert (2003) ;Roll 2003;Van Dijk (2011); Israel and Moskowitz (2013); Mclean and Pontiff (2016) have not found any size premium in the respective studies. On the contrary, Dimson and Marsh (1999) found that the small stocks earn 2.4 per cent lower than the large stocks, between the year 1983 and 1997. In another study Dimson et. al. (2002) showed reverse size effect in 18 out of the 19 countries in the sample. On the whole, Dimson et al. (2011) reiterated that the size-effect did not persevere for longer point of time. ...
... al. (2002) showed reverse size effect in 18 out of the 19 countries in the sample. On the whole, Dimson et al. (2011) reiterated that the size-effect did not persevere for longer point of time. ...
Purpose: The study seeks to capture the small-cap value-premia and to examine the risk-return trade-off in the small cap space in the Indian stock market. Research Design/Methodology: Based on the monthly-adjusted closing prices of 26 small-cap stocks, constituting the NSE Nifty Small Cap 50, alpha stock return and underlying volatilities were captured in this study using the simple linear regression analysis. Returns variability and volatilities were further used to examine the underlying ex-post risk-reward trade-off in terms of the Sharpe, Treynor and Jensen measures during the period of April 2005-March 2018. Findings: The present study was unable to document pervasiveness of much-talked-about small-size value premia in the Indian market. The study has revealed that the risk-reward trade-off drift in the small cap market indices as the small-cap value was noticed in the bottom of the small-cap universe. This drift was explained by 'big money chasing smaller universe of quality small-cap stocks' phenomenon. Originality/value: This study adds value to the personal finance and investment literature by proposing that the investors should focus on the good quality micro cap stock selection over allocating the resources to the chased portfolios of small-cap stocks in their quest for wealth maximisation. Policy Implications: The findings of the study show that the risk-bearing is rewarded more by micro-stock selection, instead of the market forecasting in the emerging markets. This is what makes this study curious! Limitations: Study outcomes reported in this paper are based on a smaller universe (sample) for the April 2005-March 2018 period. This universe missed the new investible opportunities from digital space as such stocks still are not listed on the bourses thus far in India.
... tz et al. 2000a;Amihud 2002;Schwert (2003) ;Roll 2003;Van Dijk (2011); Israel and Moskowitz (2013); Mclean and Pontiff (2016) have not found any size premium in the respective studies. On the contrary, Dimson and Marsh (1999) found that the small stocks earn 2.4 per cent lower than the large stocks, between the year 1983 and 1997. In another study Dimson et. al. (2002) showed reverse size effect in 18 out of the 19 countries in the sample. On the whole, Dimson et al. (2011) reiterated that the size-effect did not persevere for longer point of time. ...
... al. (2002) showed reverse size effect in 18 out of the 19 countries in the sample. On the whole, Dimson et al. (2011) reiterated that the size-effect did not persevere for longer point of time. ...
Purpose: The study seeks to capture the small-cap value-premia and to examine the risk-return trade-off in the small cap space in the Indian stock market. Research Design/Methodology: Based on the monthly-adjusted closing prices of 26 small-cap stocks, constituting the NSE Nifty Small Cap 50, alpha stock return and underlying volatilities were captured in this study using the simple linear regression analysis. Returns variability and volatilities were further used to examine the underlying ex-post risk-reward trade-off in terms of the Sharpe, Treynor and Jensen measures during the period of April 2005-March 2018. Findings: The present study was unable to document pervasiveness of much-talked-about small-size value premia in the Indian market. The study has revealed that the risk-reward trade-off drift in the small cap market indices as the small-cap value was noticed in the bottom of the small-cap universe. This drift was explained by 'big money chasing smaller universe of quality small-cap stocks' phenomenon. Originality/value: This study adds value to the personal finance and investment literature by proposing that the investors should focus on the good quality micro cap stock selection over allocating the resources to the chased portfolios of small-cap stocks in their quest for wealth maximisation. Policy Implications: The findings of the study show that the risk-bearing is rewarded more by micro-stock selection, instead of the market forecasting in the emerging markets. This is what makes this study curious! Limitations: Study outcomes reported in this paper are based on a smaller universe (sample) for the April 2005-March 2018 period. This universe missed the new investible opportunities from digital space as such stocks still are not listed on the bourses thus far in India.
... The cost of capital i is derived from Eq. (4) and operationalised as follows: Firstly, the risk-free rate ( r f ) is equal to 3% per year, which approximately corresponds to the long-term average of the one-month FIBOR/EURIBOR rates over the 1990-2019 sample period. 7 Secondly, motivated by the extensive evidence in Dimson et al. (2002), the parameter for risk-return profile ( ) is set to 0.25. An increase in the volatility by one percentage point is accompanied by an increase in the expected excess return by a one-fourth percentage point. ...
Financial sustainability is underrepresented in both the research on and practice of sustainability management and reporting. This article proposes a conceptual measure of financial sustainability and examines its association with capital market returns. The measure is positioned at the intersection of sustainability management, risk management and risk governance. Financial sustainability is regarded as a crucial control parameter complementing shareholder value and can be viewed by risk-averse investors as a secondary condition of investment decisions. It reduces refinancing and insolvency risks, leading to risk-adjusted excess returns in an imperfect capital market with financing restrictions and insolvency costs. We propose measuring a firm’s financial sustainability in terms of four conditions: (1) firm growth, (2) the company’s ability to survive, (3) an acceptable overall level of earnings risk exposure, and (4) an attractive earnings risk profile. We show that the application of a conditions-based investment strategy to European firms with high financial sustainability (i.e., firms fulfilling all four conditions) over the period from July 1990 to June 2019 results in monthly excess returns of 0.39%. This portfolio’s risk is lower than the risk of market investment. We find that the excess returns increase when incrementally adding each of the four conditions to the investment strategy.
... Analysing returns from 1900 to 2002, Ritter (2005) found a negative correlation between real shareholder returns and per capita real GDP. Dimson et al. (2009) found that there was a weak relationship between real per capita real GDP and earnings growth. More recently, Alam (2017) found that firm growth in poorer countries is lower than in wealthier countries. ...
The estimation of firm growth is increasingly relevant to providers of capital in periods of economic uncertainty. The current study employs univariate and multivariate analyses to assess the impact of real GDP and the dividend payout ratio on earnings growth of JSE-listed firms. The findings reveal that there is no relationship between these hypothesised predictors of earnings growth, despite contrasting results of previous studies. Through the inclusion of real GDP in models that are established in the research, the study contributes to the literature of macroeconomic variables as lead indicators of firms’ earnings growth potential. This research also extends prior research on the impact of dividend payout ratio on future earnings growth.
... For example, Fama and French (1998) and Asness et al. (2013) study global equity markets. Schwert (2003), Jorion and Goetzmann (1999); Dimson et al. (2002); McLean and Pontiff (2016); and Linnainmaa and Roberts (2018) explore average stock market returns and equity premiums across countries, while Harvey et al. (2021) and Shirvani et al. (2021) estimate the equity premium using current econometric techniques. This paper contributes that a balanced portfolio can have a larger geometric return (and expected log return) than a pure stock portfolio. ...
In the U.S., the geometric return on stocks has been higher than the geometric return on bonds over long periods. We study whether balanced portfolios have a larger geometric return (and expected log return) than stock portfolios when the risk premium is low. We use a theoretical model and historical data and find that this is the case. This low-risk premium is often observed in other developed countries. Further, in the past two decades, a balanced portfolio with 70% or 90% invested in the U.S. stock market (with the remainder invested in U.S. government bonds) performed better than a 100% stock or bond portfolio. The reason for this is that a pure stock portfolio loses a large fraction of its value in a downturn. We show that this result is not driven by outliers, and that it occurs even when the returns are log normally distributed. This result has broad policy implications for the construction of pension systems and target-date mutual funds.
... See Goetzmann (1993);Dimson, Marsh, and Staunton (2002); andIbbotson and Harrington (2021).3 As of May 7, 2021. ...
... Risk is calculable based on an ergodic assumption that the future will be like the past. To a surprising degree, this assumption holds in financial markets, as the 'equity risk premium' (the premium paid to investors for buying equities over government debt securities) has not changed much in 150 years, and, as the finance literature has decisively shown, has made owners of shares better off than those who eschew the risks attendant to them [8,9]. ...
The term ‘Emotional Finance’ normally denotes a methodological approach advocated by Richard Taffler and David Tuckett, which they intended as a challenge both to Behavioral Finance and to mainstream finance and economics. In the wake of the Great Financial Crisis, Emotional Finance received a warm reception from regulators, the financial press, and the CFA Institute. Nearly a decade on, their ideas have largely failed to achieve traction in the academic literature, and continue to struggle to find empirical validation. Their approach is essentially an application of Kleinian psychoanalysis to financial markets, albeit without the terminological rigor that psychoanalytic practitioners might expect. Because their approach is inherently interdisciplinary, it has rarely been subject to scrutiny, as few psychoanalytic commentators feel qualified to comment on financial markets, and fewer finance academics feel comfortable commenting on the psychoanalytic theory. This chapter characterizes the main theoretical claims of Emotional Finance, and subjects each of them to scrutiny, finding them largely untenable. Although financial bubbles are commonplace and emotional responses to markets unremarkable, the subsidiary arguments advanced by advocates of Emotional Finance to support their primary claims are found wanting. The interpretative strategy of Emotional Finance is fundamentally flawed. Although it is fruitful to analyze the role of emotions in financial markets, more precise, rigorous and realistic approaches to these problems are needed.
... On the other hand, the set of asset types we consider is also much broader and more differentiated than in most parts of the literature. For instance, while Dimson et al. (2009) provided pioneering work regarding the long-term development of investment returns, their approach includes only securities, leaving out all other kinds of assets. Since securities (i.e., bonds, equities and mutual fund shares)-so far-typically account for only a small share of households' portfolios, the view is far too narrow to adequately address the above debates. ...
In this paper, we present a newly generated data set on real returns of households’ aggregated asset holdings, which adds additional and more sophisticated information to existing relevant datasets in the literature. To do this, we draw on various datasets from public and private sources and then transform and combine them in a consistent manner that allows for international comparative and intertemporal analyses. Based on this, we address two current debates on the development of household wealth in the euro area that have been triggered by the low-interest environment. The first debate refers to the development of real yields on household wealth from 2000 to 2018, whereas the second debate deals with the mean-variance efficiency of household portfolios. Contrary to widespread belief, we find that yields on total wealth, which were largely dominated by non-financial assets’ yields, were mostly positive, although they exhibit a declining trend. Moreover, on average, overall real yields were significantly lower after 2008. Referring to portfolio efficiency, we find that current portfolios seem to be comparatively close to mean-variance efficiency. If households were to optimize their portfolios despite limited room for improvement, holdings of equity and investment fund shares should be reduced, contradicting common recommendations of financial advisors.
... estimates. Yet, various studies show that dividends have become more critical to investors and their portion as a percentage of total returns has increased significantly (Soe and Dash, 2008;Dimson et al., 2009;Mortimer and Page, 2012). As such, the study found it apposite to include dividends in the calculation of returns. ...
The efficient market hypothesis and the capital asset pricing model have enjoyed enormous recognition as modern financial theory’s mainstays. However, the discovery of financial market anomalies sparked questions about their validity. There is an argument that anomalies indicate either market inefficiency arising from the irrational behaviour among investors or asset pricing models’ inadequacies in capturing the risk-return relationship in financial securities. This study focused on the former assertion to determine whether the size and value anomalies on the South African market can be explained by market-wide investor sentiment. A composite sentiment index was constructed from a set of proxies using the principal component analysis technique. Subsequently, average returns analysis, predictive regressions and causality tests were employed as methods of analysis. The analysis results show that components of the abnormal value and size returns are attributable to investor sentiment. However, the causality tests revealed that the prevailing sentiment is influenced by past market performance. Overall, there is very weak evidence that sentiment explains the spreads on value and size anomalies.
... corresponding to 1-year mean returns and standard deviations of 3.43% and 16% for the risky asset (see equations (10) and (11)). The 3.43% return and 16% volatility of the risky asset are from Guillén et al. (2006), based on the empirical results in the book "Triumph of the optimist" (Dimson et al., 2002). In order to price a pension product, the pension provider requires an estimate of the mortality rate, λ(t), of the customer. ...
Communicating a pension product well is as important as optimising the financial value. In a recent study, we showed that up to 80% of the value of a pension lump sum could be lost if customer communication failed. In this paper, we extend the simple customer interaction of the earlier contribution to the more challenging lifetime annuity case. Using a simple mobile phone device, the pension customer can select the life-long optimal investment strategy within minutes. The financial risk trade-off is presented as a trade-off between the pension paid and the number of years the life-long annuity is guaranteed. The pension payment decreases when investment security increases. The necessary underlying mathematical financial hedging theory is included in the study.
... For the shortterm bond series that we considered, we used premium commercial paper for the years 1900-1931 where the data were taken from Homer and Sylla (2005), followed by three month Treasuries from 1931-1946 where the data were taken from Homer and Sylla, followed by one year Treasuries from where the data were taken from Homer and Sylla, followed by one year Treasuries from 1990-2018 where the data are provided by Shiller (2015). We remark that an alternate bond series may be obtained by Dimson, Marsh, and Staunton (2002). To adjust returns for inf lation, we use the CPI For All Urban Consumers as provided by the United States Bureau of Labor Statistics. ...
... First, the rate of return on the risk-free investment rf is equal to 3% per year, which approximately corresponds to the long-term average of the one-month Fibor/Euribor rates over the 1990-2019 sample period of the underlying longitudinal study of Gleißner et al. (2020). Second, motivated by the extensive evidence in Dimson et al. (2002), the parameter of the risk-return profile λ is set to 0.25. The parameter λ expresses the risk-return profile of alternative investments and shows the additional return per unit risk in alternative investments (the so-called Sharpe ratio, see Gleißner et al. 2020). ...
Purpose: Financial sustainability is underrepresented in both research on and the practice of sustainability management and reporting. In this article, we examine empirically how financially sustainable firms performed in the Corona crisis.
Methods: We measure financial sustainability by four conditions: (1) firm growth, (2) the company’s ability to survive, (3) an acceptable overall level of earnings risk exposure, and (4) an attractive earnings risk profile. We apply this measurement to investment portfolios of a broad sample of firms from 15 European countries of the MSCI Europe using typical investment portfolio characteristics.
Results: We find that financially sustainable firms outperform both the broad market and firms with low financial sustainability for the time span July 2019 to March 2020.
Conclusion: An investment strategy that invests in financially sustainable firms seems to be better capable of overcoming economic breakdowns such as the Corona crisis. We find that the returns increase with each of the four conditions that are included in the investment strategy. This underlines that considering financial sustainability is interesting for financial management, corporate governance and management control.
... В [Vissing-Jorgensen, 2003] указано, что серьезным препятствием для приобретения ценных бумаг населением являются высокие транзакционные издержки на получение информации об этих бумагах и их эмитентах. На основе исследования долгосрочной статистики доходности и рисков инвестиционных активов в развитых странах авторы [Dimson et al., 2002] пришли к выводу, что приобретение акций населением может быть ограничено из-за высокой волатильности их доходности и низких значений коэффициента Шарпа в сравнении с альтернативными объектами инвестирования. Наконец, в исследовании показано, что низкий уровень участия населения на фондовом рынке может быть вызван отсутствием доверия к рыночным институтам, в том числе к правилам финансового регулирования и надзора. ...
The article explores behavior features of different group of private investors on the Moscow and Saint Petersburg stock exchanges. It was found that the change in the size of the biggest group of registered broker clients on Moscow Exchange depended heavily on growth of real income and key characteristics of passive forms of income, such as deposit rates, government bond returns and stock dividend yield. Active broker clients on the Moscow stock exchange mainly focused on more speculative factors, such as equity premium, equity volatility, foreign stocks’ returns and exchange rate. The growth of individual investment accounts depended on factors of both active and speculative forms of income. The quantity of broker clients on Saint-Petersburg Exchange relied on an even wider set of factors, which included not only risk and returns on national markets, but also characteristics of foreign assets and exchange rates. The two Russian exchanges are interrelated. The bond and equity premium growth makes the national market more attractive than foreign assets. The expansion of private investors on the stock market in Russia, which began in 2018, is explained not only by a search for other investment instruments apart from deposits, especially under the ongoing decline in interest rates, but also by a growing interest in individual investment accounts. The latter represent a positive example of state influence on people’s savings through tax policy. Another factor of the raise of private investments was the implementation of modern investment platforms and active promotion of broker services by major banks. The financial crisis which begun in March 2020 can become a serious challenge for millions of private investors who had opened accounts in the previous two years.
... and Jorion and Goetzmann (1999) explain the size of the equity premium in terms of survivorship bias, with the observed equity premium being upward biased due to the long-term survival of the markets from which they are measured. Dimson et al (2002), however, disagree with this explanation and argue that the premium in fifteen other countries in the 20 th century was as large as that in the US. Fama and French (2002) explain the high equity premium in the second half of the 20th century in terms of an unanticipated decline in discount rates. ...
Many, if not most, individuals cannot be regarded as 'intelligent consumers' when it comes to understanding and assessing different investment strategies for their defined contribution pension plans. This gives very little incentive to plan providers to improve the design of their pension plans. As a consequence, pension plans and their investment strategies are still currently in a very primitive stage of their development. In particular, there is very little integration between the accumulation and decumulation stages. It is possible to produce well-designed DC plans but these need to be designed from back to front (that is, from desired outputs to required inputs) with the goal of delivering an adequate targeted pension with a high degree of probability. We use the analogy of designing a commercial aircraft to explain how this might be done. We also investigate the possible role of regulators in acting as surrogate 'intelligent consumers' on behalf of plan members.
... Returns in sovereign bonds have been widely researched. Results from a study by Dimson et al. (2009) after analysing over a century of data suggest that overall returns averaged out to 5% per year during the period. However, as aforementioned, the return on such bonds is widely dependent on the interest rate environment of the period in question. ...
This study is intended to offer the reader a basic understanding of fixed-income securities, focusing on bonds and the security's many variants that make up the debt instrument category. The report introduces multiple forms of these debt securities, with an overview of the main characteristics and a general notion of the different types of issuers and bonds. References to the local fixed-income market are also made throughout this paper, whereby one can see the number of secured and unsecured debt at the time the report was compiled, while also specifying certain local approaches in terms of accrued interest, amongst others. The report follows with a brief description of the risks faced by bondholders, concluding with a brief summary of the report.
... The stock price volatility is set to two and a half times that of the market, a level that is fairly high for large cap stocks but not atypical for mid-size companies (Mitchell and Utkus, 2002). The model parameters are also generally consistent with data in the literature (Dimson, Marsh and Staunton, 2002, Segall, 2001, Constantinides, 2002. The return properties for company stock are chosen to satisfy the Capital Asset Pricing Model (CAPM), ...
This paper considers the risk of employee pension accounts when there is a large weighting in company stock. The effect of reduced diversification and job related risk are considered. Mean-variance and scenario-based stochastic programming models are used for analysis. The stochastic porgramming formulation allows for fat tailed return distributions. Company stock is only optimal for employees with very low risk aversion or with very high return expectations for company stock. These conclusions are further strengthened when the possibility of job loss associated with poor company stock performance is included in the model. High observed weightings in company stock in DC pension plans are not explained by rational one-period models. Employees are bearing high levels of risk that is not rewarded, and that can lead to disastrous consequences.
... By way of comparison, the second column looks at the volatility of a fund based on the return on UK equities over the same period. The final column measures the volatility of a global portfolio over 1997-2010 (based on data on global returns in Dimson et al. 2002). The rankings of the different measures of the volatility of revenues and fund payouts are the same across the three columns, while the UK and World portfolios exhibit higher levels of volatility compared to the US. ...
Exhaustible resources and the revenues they generate present a number of broad problems for macroeconomic management. For example, tax revenues can be large and highly volatile, and the stream of revenues is finite. An increasing number of countries now view resource funds and/or fiscal rules for resource revenues as the answer to these challenges. In this paper, we explore the consequences for the UK if past revenues arising from the depletion of subsoil assets had been channelled into a sovereign wealth fund. We show that had a decision been made to establish such a fund in 1975, this could have been substantial in size by 2018 (about GBP 354 billion) and, moreover, would have had a number of benefits such as a reduction in volatility of resource revenues flowing to the Treasury. Crucially, the fund's value would have substantially boosted the size of the government balance sheet, yielding corresponding fiscal benefits. We argue this missed opportunity is underlined further by considering the current debate about shale gas development in the UK. Notwithstanding considerable uncertainties, favourable and optimistic projections for key parameters are required for any shale-based fund to match what we simulate based on past experience for conventional subsoil assets.
... Treasury bills (91 day tender rates) also earned 5.5% annually during this period. South Africa is reported to have the highest long-run real return on listed equities in the world (Dimson et al., 2002). South Africa therefore has a high return on capital, which should in turn create high levels of wealth inequality. ...
Theoretical models show that financial inclusion reduces wealth inequality. Existing empirical models are restricted to estimates using income inequality because of a lack of cross country wealth inequality data. We used 2010-11 and 2014-5 waves of the National Income Dynamics Study combined with South African tax records to estimate wealth and income inequality. Using Re-centered Influence Function regressions on the micro-level records, we confirmed the negative cross-country relationship between financial inclusion and income inequality. Wealth inequality is different. Financial inclusion improved wealth shares of only the middle class. Because of predatory lending, expansion of credit reduced the wealth share of the poor. Improved savings by the middle class, providing better oversight over financial services targeted at the poor and removing impediments to the small business sector are pre-conditions for financial inclusion to reduce wealth inequality.
... The detailed outline of the sample size in selected studies is presented in Table 1. 61 1973-2014Datastream indices Richards (1995 18 1969-1994 MSCI indices Richards (1997) 16 1969MSCI indices Rikala (2017) 17 1990Datastream indices Smith and Pantilei (2015) 45 1971 MSCI indices, Exchange-traded funds Spierdijk et al. (2012) 17 1900Dimson et al. (2002 data Andreu et al. (2013Andreu et al. ( ) 16 1970Andreu et al. ( -2009 Exchange-traded funds ...
The last three decades brought mounting evidence regarding the cross-sectional predictability of country equity returns. The studies not only documented country-level counterparts of well-established stock-level anomalies, such as size, value, or momentum, but also demonstrated some unique return-predicting signals such as fund flows or political regimes. Nonetheless, the different studies vary remarkably in terms of their dataset and methods employed. This study aims to provide a comprehensive review of the current literature on the cross-section of country equity returns. We focus on three particular aspects of the asset pricing literature. First, we study the choice of dataset and sample preparation methods. Second, we survey different aspects of the methodological approaches. Last but not least, we review the country-level equity anomalies discovered so far. The discussed cross-sectional return patterns not only provide new insights into international asset pricing but can also be potentially translated into effective country allocation strategies.
... Investing in stock markets is an important economic outcome. Most stock markets across the world have given a significant equity premium (Dimson et al., 2002) to investors. Higher than inflation returns allow investors with a suitable allocation in their portfolios to equity to create wealth at one extreme and at least prevent the value of their savings from being eroded at the other extreme. ...
... Investing in stock markets is an important economic outcome. Most stock markets across the world have given a significant equity premium (Dimson et al., 2002) to investors. Higher than inflation returns allow investors with a suitable allocation in their portfolios to equity to create wealth at one extreme and at least prevent the value of their savings from being eroded at the other extreme. ...
... For the shortterm bond series that we considered, we used premium commercial paper for the years 1900-1931 where the data were taken from Homer and Sylla (2005), followed by three month Treasuries from 1931-1946 where the data were taken from Homer and Sylla, followed by one year Treasuries from where the data were taken from Homer and Sylla, followed by one year Treasuries from 1990-2018 where the data are provided by Shiller (2015). We remark that an alternate bond series may be obtained by Dimson, Marsh, and Staunton (2002). To adjust returns for inf lation, we use the CPI For All Urban Consumers as provided by the United States Bureau of Labor Statistics. ...
... Allereerst zullen we de prijsinflatie nader bezien. De eerder genoemde studie van Dimson (2002) geeft een fraai historisch overzicht, waarbij verschillende deelperioden worden beschouwd. Dit exposé is weergegeven in tabel 10 en 11. ...
... The latter involves the selection of any sample period and adjusting the return for unexpected capital gains. Several recent studies take this approach, notably Dimson, Marsh and Staunton (2002), Fama and French (2002) and Ibbotson and Chen (2003). Each study uses a slightly different way to remove the impact of unexpected capital gains to recover the typical expected ERP over the sample period. ...
The concept of an equity risk premium (ERP) is fundamental to modern financial theory and central to every decision at the heart of corporate finance. Efforts to quantify ERP are well rewarded by insights into the stability and dynamics of long-term investment performance. Such efforts require the quantification of both historically realised (ex post) and expected future (ex ante) premiums. Finding an appropriate proxy for the expected (ex ante) ERP remains a challenging aspect. One widely used application is the use of long-term averages of observed market premiums as a proxy for expected returns. The aim of this paper is to analyse the appropriateness of the historical methodology of estimating expected ERP in the South African context. The analysis in this paper suggests that analysing past historical figures remains useful in the SA context. This is supported by the results of the statistical analysis, showing stationarity of the ERP time-series, meaning that the true mean does not change over time. This implies that the historical average mean may be used as a proxy for the long-run expected ERP. However, the well-documented problems relating to large standard errors (predictability problem) and relevance due to changing circumstances are also evident in the SA data. Thus, investors would be well advised to analyse the past and apply informed judgments as to future differences, if any, when attempting to arrive at fair forecasts.
Investment and portfolio strategies are some of the most exciting topics in finance. This book presents the most up-to-date topics and techniques in finance to facilitate the investment process for researchers and investors in selecting appropriate investment strategies with the emergence of new issues and concepts in financial areas. This book contains nine chapters divided into three sections: The first section, “Investment and
Portfolio Strategies,” discusses different investment strategies in portfolio selection. The second section, “Behavioral Finance and Investment Decisions,” examines the application of behavioral finance in investment decisions. The last section, “Emerging New Trends in Finance,” includes some new and interesting finance topics that can depict our vision for the future arena of finance.
Real estate—housing in particular—is a less profitable investment in the long run than previously thought. We hand-collect property-level financial data for the institutional real estate portfolios of four large Oxbridge colleges over the period 1901–1983. Gross income yields initially fluctuate around 5%, but then trend downward (upward) for agricultural and residential (commercial) real estate. Long-term real income growth rates are close to zero for all property types. Our findings imply annualized real total returns, net of costs, ranging from approximately 2.3% for residential to 4.5% for agricultural real estate.
Dynamic model averaging (DMA) has become a widely used estimation technique in macroeconomic applications. Since its introduction in econom(etr)ics by Gary Koop and Dimitris Korobilis in 2009, applications of DMA have increased in unimaginable ways. Besides applying the original (univariate) framework suggested by Koop and Korobilis on the data of interest, for example, the inflation rate of the country of choice or return on the rate of equity, practitioners have been able to use DMA‐based techniques to extend current models, thereby further improving out‐of‐sample forecast accuracy, overcome computational bottlenecks, and even help improve our understanding of economic phenomena by introducing new models. These include using Google search data in combination with the predictive likelihood to govern switching between different predictive regressions in the model set or specifying large time‐varying parameter vector autoregressions that can be estimated without resorting to simulation‐based techniques. This study provides an overview of DMA techniques and the ways in which they have evolved since the contribution of Koop and Korobilis.
This book develops the first new, liberal theory of economic justice to appear since John Rawls and Ronald Dworkin proposed their respective theories back in the 1970s and early 1980s. It does this by presenting a new, liberal egalitarian, non-Marxist theory of exploitation that is designed to be a creature of capitalism, not a critique of it. Indeed, the book shows how we can regulate economic inequality using the presuppositions of capitalism and political liberalism that we already accept. In doing this, the book uses two concepts or tools: a re-conceived notion of the ancient doctrine of the just price, and my own concept of intolerable unfairness. The resulting theory can then function as either a supplement to or a replacement for the difference principle and luck egalitarianism, the two most popular liberal egalitarian theories of economic justice of the day. It provides a new, highly-topical specific moral justification not only for raising the minimum wage, but also for imposing a maximum wage, for continuing to impose an estate tax on the wealthiest members of society, and for prohibiting certain kinds of speculative trading, including trading in derivatives such as the now infamous credit default swap and other related exotic financial instruments. Finally, it provides a new specific moral justification for dealing with certain aspects of climate change now regardless of what other nations do. Yet it is still designed to be the object of an overlapping consensus—that is, it is designed to acceptable to those who embrace a wide range of comprehensive moral and political doctrines, not only liberal egalitarianism, but right and left libertarianism too.
The relative complexity of a country's economy explains relative per capita wealth. Measures of complexity have also been used to improve the estimation accuracy of gross domestic product (GDP) growth forecasts. Why complexity matters is settled in the theory of gains from trade. Not settled are the determinants of complexity and how complexity can be unleashed to facilitate economic growth. We explore how economic institutions, as measured by an index of economic freedom, and economic complexity interact and impact a country's equity market return. We find complex economies where realized per capita GDP is lower than comparably complex economies experience an acceleration in GDP growth when economic freedom is increased. Simultaneous to the gains in economic institutions and complexity, equity markets outperform, suggesting the wealth of a nation rests on the institutions that facilitate complexity.
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 analysis of the collection identifies general attributes of art portfolios crucial in explaining why investor returns can substantially diverge from market returns: transaction-specific risk, buyer heterogeneity, return skewness, and portfolio concentration. Furthermore, our findings highlight the limitations of art price indexes as a guide to asset allocation or performance benchmarking. (JEL B26, C43, G11, G12, G14, Z11) Received: September 7, 2018: Editorial decision: November 24, 2019 by Editor: Nikolai Roussanov
This paper proposes a term structure of interest rates model that modifies and extends the Campbell and Cochrane (1999) surplus consumption framework. The distinguishing contributions are tractable, continuous-time analytical solutions for the term structure of interest rate generating a realistic upward sloping yield curve. Despite the focus on the term structure, the model matches plausible equity quantities. For the interest rate, the model is able to account for the moments of bond yields at numerous maturities and produce countercyclical bond risk premia as seen in the data. Moreover, the model captures reasonable time series fluctuation on real interest rates. However, the model has difficulties reproducing empirical deviations from the expectations hypothesis.
What is the link between stock returns and news about economic growth? Using consensus forecasts from the Philadelphia Fed’s Survey of Professional Forecasters, I find that the univariate association between stock returns and gross domestic product (GDP) growth forecast surprises is indistinguishable from zero. Although consistent with prior macro-finance research, this phenomenon is intriguing if one believes that the stock market should move in sync with the economy. I consider two non–mutually exclusive hypotheses for this puzzling phenomenon. The first hypothesis is that GDP growth forecast surprises are correlated with offsetting cash flow news and discount rate news. The second hypothesis is that GDP growth forecast surprises measure news about economic growth with noise. I extract a measure of market-level discount rate news using accounting data and find evidence consistent with the hypothesis of offsetting value-relevant news. Overall, this article makes an important step toward resolving evidence of a disconnect between stock market returns and news about economic growth. More broadly, this article illustrates how accounting constructs and methods can be applied to inform macro-finance questions.
Traditional finance theory posits that the relation between the risk and return of stocks is positive. Equally, investment practice is often based on the contention that high (low) beta stocks earn higher (lower) returns. However, this fundamental relation is questioned by several researchers, who present mixed evidence. The purpose of this paper is to shed further light on this question by examining both market- and firm-level price data; employing a battery of tests, including individual market, panel and quantile regressions; analysing the nature of the relation during periods of high and low volatility and in bull and bear markets. The results indicate that there is no single robust relation between risk and return. Notably, the results suggest a positive relation when returns are high and during bear markets. Further, the finding of a positive relation is stronger at the market-level than the firm-level and over long time periods. However, a negative relation exists at low return levels, during bull markets and, even more so, at the individual firm level. Overall, the results suggest that the risk-return relation is switching in nature and is primarily driven by changing risk preferences. A positive relation exists when macroeconomic risk plays a larger role.
Paul Samuelson regarded finance as the “Mount Everest” of economic pursuits. He proved that informationally efficient markets implied random price behavior and believed that very few investors could “beat the market.” Motivated by his study of the dismal performance of “managed money,” Samuelson was the first to advocate the creation of a low-cost stock index fund and his writings spurred Jack Bogle to create the S&P 500 Index Trust. His work on option theory brought him to the verge of the Black–Scholes formula, but the final equation eluded him. Samuelson warned investors that the Law of Large Numbers did not imply that investors with longer horizons should put a greater proportion of their portfolio in stocks but demonstrated that mean reversion of equity prices coupled with sufficient risk aversion would imply that strategy.
In this article, using new estimates of the size of the UK's capital market, we examine financial development and investor protection laws in Britain c .1900 to test the influential law and finance hypothesis. Our evidence suggests that there was not a close correlation between financial development and investor protection laws c .1900 and that the size of the UK's share market is a puzzle given the paucity of statutory investor protection. To illustrate that Britain was not unique in its approach to investor protection in this era, we examine investor protection laws across legal families c .1900.
Bij veel economische activiteiten met monopolie-achtige kenmerken wordt het maximaal te behalen rendement door een toezichthouder gefixeerd op basis van het corporate finance gedachtegoed, en in het bijzonder de WACC-methodologie. Aan de juiste bepaling hiervan zitten echter vele haken en ogen. Wij bespreken de belangrijkste misvattingen. Daarnaast wordt ingegaan op de beperkingen van het corporate finance denken, en in het bijzonder gaan wij in op de vraag in hoeverre de exclusieve focus op Beta als maatstaf van risico gerechtvaardigd is.
The objective of all firms is the creation of value. A firm’s strategies describe how it intends to create value over an immediate time frame, and the value opportunities it is searching for over the long term. Value, however, has different meanings to different stakeholders. Firms manage resources to create value through their capabilities to deliver products or services that provide customer value, maintain relationships with resource providers and customers, and organize activities through governance, management systems and processes. To do this, a firm has to create an equitable balance between stakeholders such as management, customers, employees, financiers, unions, suppliers, shareholders, government and society in general.
In this chapter, we study the return on investment in the companies operating in the area of current-day South Africa. The equity traded on the London Stock Exchange for companies operating in this region was primarily related to mining—diamond, gold and copper (but indirectly also through railways and utilities). The mining elite became influential politically, actively shaping the institutions of South Africa—and potentially also the geography of the British Empire. The aim of this chapter is to put our estimates for the return on investment in South Africa into proper historical context, and for that purpose, we draw heavily on previous research in the field. We also contribute with new estimates of the return on investment in South Africa over the century from 1869 to 1969, for a number of important companies as well as for different portfolios of investments.
In this chapter, we describe the theoretical framework of the book. It is described how several classical economists saw colonies as a possible vent for surplus capital in Europe. Marxists later came to focus primarily upon what has been called ‘super-profits’, that supposedly could be earned from investing in colonies. More recent scholarship has primarily viewed imperialism and colonialism as driven by various special economic interests. According to yet another line of thought, colonialism could have reduced the risk of investing in colonies.
The aim of this chapter is to use the risk/return relationship to broaden the picture of the financial axis between the London financial market and Africa during our period of study. We use two central concepts in the analysis of financial risk—volatility and equity risk premium—to put our return estimates in context. We move on to analyse the relationship between the companies’ longevity in our sample and the return on investment. Our results show that investing in Africa was somewhat riskier than investing in the United Kingdom, which on an aggregate level corresponds with a somewhat elevated return on investment. Disaggregating the data by region in Africa at the same time shows that many investors were unable to receive a premium for the increased risk they faced.
This chapter presents previous research that has attempted to study private gains from investing in colonies—measured either as the profitability of companies or the return on investment enjoyed by investors. The chapter describes how these studies have been delineated in time and space and also what methods and data have been employed. The chapter concludes by showing the gap in the previous literature that this book aims to fill.
In this chapter, we provide an aggregate overview of the return on investment in Africa, studying how it changed over time and by sector of operation. We compare our results to previous estimates for the same geographical region and time period in order to test the reliability of our estimates. The results from these comparisons show that our figures match such previous estimates well. We also compare our results to previous estimates for other parts of the world in order to draw conclusions about the rates of return on investing in Africa during the period that we study. The results indicate that the return on investment in Africa was slightly elevated on an aggregate level compared to the return on investment elsewhere in the world. There were also important differences in the return on investment over time and between different regions in Africa.
In this chapter, we describe the sources, methods and data employed in our study. We motivate the research strategy to estimate the total return on investment, in contrast to some other measures of company profitability, and describe in detail the procedures of our calculations. The chapter furthermore describes the construction of the African Colonial Equities Database, with the Investor’s Monthly Manual as its key source. The process of assembling the data is explained, and potential problems with the dataset are discussed. The chapter finally outlines the additional sources employed in the study, such as The Barlow Rand Archive and business press like The Financial Times.
Rising economic inequality in the United States has become a topic of political interest in recent years. Inequality appears to show cycles corresponding to secular cycles, suggesting the possibility of declining inequality in the future. The most recent episode of declining inequality in America is known as the Great Compression. It occurred in the middle of the 20th century. This paper uses the guided variation cultural evolution model (Boyd and Richerson 1985:95-7) to explain shifting trends in inequality in five nations. According to this analysis, the Great Compression was largely due to a shift in the business environment reflecting tax and other economic policy implemented over the 1914-45 era. The cultural evolutionary response to this environmental change was to replace “shareholder primacy” cultural variants with “stakeholder capitalism” variants which resulted in lower inequality. Half a century later, new policy, implemented in response to the great inflation following the collapse of the Bretton Woods system, changed the business environment again in ways that favored shareholder primacy cultural variants and rising inequality. The extent to which this occurred depended on the degree to which stakeholder capitalism was integrated into institutions.
In diesem Beitrag wird empirisch untersucht, ob in Deutschland wie in den USA das Phänomen zu beobachten ist, daß Aktien mit niedriger Marktkapitalisierung im Schnitt höhere Renditen erzielen als das Sharpe/Lintner-Modell prognostiziert, Aktien mit hoher Marktkapitalisierung niedrigere (Size-Effekt). Zudem wird unter-sucht, ob neben dem Size-Effekt auch ein Januar-Effekt auftritt und wie die beiden genannten Effekte zusammenhängen. Mit einem umfangreichen Datensatz (1954 bis 1990) und alternativen ökonometrischen Vorgehensweisen wird die Existenz eines Size-Effektes bei bereinigten Renditen nachgewiesen. Damit wird gleichzeitig auch das Sharpe/Lintner-CAPM in seiner strengen Form für den deutschen Markt widerlegt. Wichtige Erklärungshypothesen für die genannten Effekte werden diskutiert.
[eng] The Actual Return on Stock Market Investments from 1950 to 1992 . The actual return on equity investments over the forty-three year period from 1950 to 1992 is evaluated by transforming the stock market indices into portfolios. The study presented here uses a new methodology for bond portfolios and is based on the strong hypothesis of reinvested annual income. Two results confirm the findings of previous studies: gold has provided a mediocre return while shares have again proved to be the highest performing investment over a long period of time. However, for the first time since 1914, bond investments have maintained the purchasing power of the savings invested. . Listed securities therefore emerge as profitable although the earnings on them are erratic, or risky, due to sometimes severe stock market fluctuations. There is no alternative to this risk-return link. The only strategy is patience. The longer the investment is held, the more price volatility is smoothed and moves towards the lowest fluctuation rate, which nevertheless remains high at 15% for shares and 4% for bonds. [ger] Die tatsâchliche Rentabilitât der bôrsennotierten Vermôgenswerte zwischen 1950 und 1992 . In diesem Artikel wird die tatsâchliche Rentabilitât der Anlagen zwischen 1950 und 1992, das heiBt wàhrend eines Zeitraums von dreiundvierzig Jahren, durch die Umwandlung der Bôrsenindizes in Portefeuilles bewertet. Die hier vorgestellten Arbeiten, die auf einer neuen Méthode fur Schuldverschreibungs-Portefeuilles beruhen, sind unter der starken Annahme durchgefùhrt worden, da(3 der Jahresertrag wieder investiert wird. Zwei Ergebnisse bestâtigen diejenigen, die bei vorausge- gangenen Untersuchungen erzielt wurden: Gold hat eine mittelmâBige Rentabilitât, wâhrend sich die Aktien einmal mehr als die Anlagen mit der langfristig hôchsten Ertragskraft erweisen. Dagegen haben die Anlagen in . Schuldverschreibungen zum ersten Mal seit 1914 die Kaufkraft der investierten Spargelder bewahrt. . Einerseits erweisen sich die bôrsennotierten Vermôgenswerte somit als recht rentabel, und andererseits sind ihre Ertrâge aufgrund der manchmal extrem gro3en Bôrsenschwankungen mit Unsicherheiten oder Risiken behaftet. Zu dieser Verbindung zwischen Rentabilitât und Risiko gibt es keine Alternative, sondern lediglich eine Stratégie, und zwar die der Geduld. Je langer die Laufzeit ist, desto mehr nimmt die Volatilitat der Kurse ab und nâhert sich einem nicht reduzierbaren Schwankungsgrad, der jedoch hoch bleibt: 1 5% bei den Aktien und 4% bei den Schuldverschreibungen. [spa] La rentabilidad real de los activos bursâtiles de 1950 a 1992 . La rentabilidad real de las inversiones entre 1950 y 1992, o sea en un periodo largo de 43 ahos, se pondéra aquf al cambiar los indices bursâtiles en carieras. Los estudios que publicamos, se basan en una nueva metodologia en cuanto a la cariera de obligaciones y se realizan siguiendo la hipôtesis fuerte de la reinversiôn de la renta anual. Dos resultados confirman los de los estudios anteriores : el oro tuvo una mediocre rentabilidad, pero las acciones resultan ser, una vez mâs, la inversion que mayor rendimiento da a largo plazo. En cambio, por primera vez desde 1914, la inversion en obligaciones ha mantenido el poder adquisitivo del ahorro invertido. . De este modo, los activos cotizados se revelan, por un lado, remuneradores, por otro lado, los resultados son aleatorios o arriesgados por ser a veces sumamente violentas las fluctuaciones bursâtiles. . No existe alternativa al nexo rentabilidad-riesgo, sino tan solo una estrategia : la paciencia. Cuanto mâs larga es la detenciôn, tanto mâs disminuye la volatilidad de los cursos y converge hacia un grado incompresible de fluctuaciôn, el cual permanece alto sin embargo : el 15 % en cuanto a acciones y el 4 % en cuanto a obligaciones. [fre] La rentabilité réelle des actifs boursiers de 1950 à 1992 . La rentabilité réelle des placements entre 1 950 et 1 992, soit sur une période longue de quarante-trois ans, est évaluée en transformant les indices boursiers en portefeuilles. Les travaux présentés ici, basés sur une méthodologie nouvelle pour le portefeuille obligataire, sont réalisés sous l'hypothèse forte du réinvestissement du revenu annuel. Deux résultats confirment ceux des études antérieures : l'or a eu une rentabilité médiocre, alors que les actions s'avèrent, une fois de plus, le placement le plus performant sur le long terme. Par contre, pour la première fois depuis 1914, le placement obligataire a préservé le pouvoir d'achat de l'épargne investie. . Ainsi, d'une part, les actifs cotés se révèlent rémunérateurs, d'autre part, leurs résultats sont aléatoires ou risqués car les fluctuations boursières sont parfois extrêmement brutales. Il n'existe pas d'alternative à ce lien rentabilité-risque, mais seulement une stratégie : la patience. Plus la durée de détention est longue, plus la volatilité des cours diminue et converge vers un degré incompressible de fluctuation qui reste toutefois élevé : 15 % pour les actions et 4 % pour les obligations.
A vast and often confusing economics literature relates competition to investment in innovation. Following Joseph Schumpeter, one view is that monopoly and large scale promote investment in research and development by allowing a firm to capture a larger fraction of its benefits and by providing a more stable platform for a firm to invest in R&D. Others argue that competition promotes innovation by increasing the cost to a firm that fails to innovate. This lecture surveys the literature at a level that is appropriate for an advanced undergraduate or graduate class and attempts to identify primary determinants of investment in R&D. Key issues are the extent of competition in product markets and in R&D, the degree of protection from imitators, and the dynamics of R&D competition. Competition in the product market using existing technologies increases the incentive to invest in R&D for inventions that are protected from imitators (e.g., by strong patent rights). Competition in R&D can speed the arrival of innovations. Without exclusive rights to an innovation, competition in the product market can reduce incentives to invest in R&D by reducing each innovator's payoff. There are many complications. Under some circumstances, a firm with market power has an incentive and ability to preempt rivals, and the dynamics of innovation competition can make it unprofitable for others to catch up to a firm that is ahead in an innovation race.
A debatable issue between practitioners and academicians is the impact of the holding period on the optimal diversification between equities and senior securities. This article demonstrates that as the holding period increases, the variance of equity increases relatively faster than the variance of senior securities, resulting in a mean-variance investor concentration in a portfolio of senior securities.
IN this paper, we examine the hedging performance of the new FTSE 100 Share Index. First, we reconstruct a back-history of the monthly and daily index values using the London Share Price Database. Then we analyse the statistical characteristics of the Index, comparing it with the FT-Actuaries All Share and FT Ordinary Indexes. Finally, we examine the sources of undiversification within the FTSE Index. We conclude that the market is likely to track the FTSE Index to within a close tolerance, and that the residual tracking error is attributable partly to sector imbalances, but more importantly, to imbalances in exposure to smaller capitalization stocks.
Cumulative index series for the Swedish security markets: common stocks, long-term government bonds, short-term risk free interest rate, consumer prices and the exchange rate SEK/$ are presented. The period under consideration is from 1919 to 1990. The series are presented as annual year-end figures but are all calculated from monthly data. It is for the first time that the index for common stocks is presented for such a long period. The summary statistics of the Swedish security markets are also presented and the results from the American security markets are used as a reference. The long time period makes it possible,to estimate the sign of the relevant risk premiums as well as the existence of mean reversion in stock returns for long investment horizons.
Conventional studies of long-run returns on capital market assets, because of changes in valuation between the starting date and the ending date, obscure the basic return each asset earns. Consequently, both absolute returns and measured risk premiums are distorted. The basic return can be extracted by selecting widely separated dates with identical valuation levels. Over nearly 200 years, the analysis for equities produced 63 episodes averaging 35 years with a mean nominal basic return of 9.6 percent and standard deviation of 1.6 percent; 63 bond episodes averaging 43 years produced a mean nominal basic return of 4.9 percent and standard deviation of 2.3 percent. Equities revealed a tendency to regress to the mean over time, but no such tendency was apparent in the bond data. Thus, long-run equity returns were more predictable than long-run bond returns. This conclusion applies with even greater force to real returns.
Research in the field of finance has always had a strong empirical orientation. A necessary condition of empirical research is access to relevant data.
This paper addresses an issue central to the estimation of discount rates for capital budgeting: should the geometric mean or arithmetic mean of past data be used when estimating the discount rate? the use of the arithmetic mean ignores estimation error and serial correlation in returns. Unbiased discount factors have been derived that correct for both these effects. In all cases, the corrected discount rates are closer to the arithmetic than the geometric mean.
Recent research shows that emerging markets are distinguished by high returns and low covariances with global market factors. To check whether these results can be attributed to their recent emergence, we simulate a simple, general model of global markets, with a realistic survival process. The simulations reveal a number of new effects. We find that pre-emergence returns are systematically lower than post-emergence returns, and that the brevity of a market history is related to the bias in returns as well as to the world beta. These patterns are confirmed by an empirical analysis of emerging and submerged markets.
This study of 862 press recommendations demonstrates that the size effect can distort longer-term performance measures, and hence event studies. Relative to similar sized companies, post-publication performance is neutral. However, market adjustments, the CAPM and Market Model, with equally or capitalization weighted indexes, all produce biased results. Event studies are most exposed to such bias when the measurement interval is long, event securities differ systematically in size or weighting from the index constituents, the size effect is large and/or volatile, and when CAPM-type methodologies are used. These distortions are avoided by explicitly controlling for size.
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 illustrate potential uses of the new series by investigating stock market seasonality, inflation-linked bonds, real dividend growth rates, and the small-firm effect. While some of our findings resemble U.S. results, we also report differences between U.K. and U.S. stock market behavior. Copyright 2001 by University of Chicago Press.
This article estimates real interest rates and inflation expectations from market-observable data without assuming anything about the form of agents' expectation-formation mechanism. By examining prices of index-linked and conventional gilt-edged securities form the U.K. bond market, real interest rates and inflation expectations are computed quarterly beginning 1982:2 for up to fourteen maturities ranging from 1988 to 2024. Copyright 1990 by the University of Chicago.
Lawrence Fisher and James H. Lorie, and Roger G. Ibbotson and Rex A. Sinquefield have documented annual returns on common stocks since 1926. Prior to 1926, due to the work of the Cowles Commission, annual returns can be extended back to January 1871. This study utilizes Alfred Cowles's reconstruction of common stock returns to provide a comparison between the periods 1871-1925 and 1926-85. A comparable series of annual returns over the complete 115-year period is developed in both nominal and inflation-adjusted terms. The comparison of the two periods suggests that the inflation-adjusted return averages 6.6 percent with similar variability between the two periods. Copyright 1987 by the University of Chicago.
A contract to insure $1 against inflation is equivalent to a European call option on the consumer price index. When there is no deductible this call option is equivalent to a forward contract on the CPI. Its price is the difference between the prices of a zero coupon real bond and a zero coupon nominal bond, both free of default risk. Provided that the risk-free real rate of interest is positive, the price of such an inflation insurance policy first rises and then falls with time to maturity. It is a decreasing function of the real interest rate and an increasing function of both the expected rate of inflation and the real risk premium on nominal bonds. When a deductible is introduced, the insurance policy can no longer be priced like a CPI forward contract. The option feature has its greatest value when the deductible is close to the forward rate of inflation, defined as the difference between the risk-free nominal and real interest rates. Such inflation insurance contracts are priced using the model developed by Black-Merton-Scholes. Pricing an inflation insurance policy with a cap requires only a minor modification of the model. The approach presented in this paper permits fairly precise quantification of the cost of implementing proposals to index pension benefits for inflation. It also gives us a way of estimating the savings to the Social Security system that would result from introducing a deductible. Key words: Inflation, insurance, forward contract, call option, put option, contingent claim, deductible, cap, futures contract, CPI, dynamic hedging, portfolio rebalancing.
This paper examines the problems of estimating risk measures and their stability in thin markets. It shows analytically that conventional approaches used in previous studies can lead to serious overestimates of the stability of risk measures when shares are subject to thin trading. It then demonstrates, using UK data, that this is, in fact, a serious practical problem, and that the resultant biases are of precisely the form predicted. Finally, the paper presents reliable evidence on the stability of UK risk measures by using an estimation method designed to avoid thin trading bias. Using this approach, risk measures are found to be as stable in the UK as they are in the USA.
