Re: Investing (long term returns)

From: Robin Hanson (
Date: Thu Jun 08 2000 - 07:21:42 MDT

Rob Sweeney wrote:
>See, for example, , for a quick
>table comparing inflation-adjusted returns for various asset classes.
>... Of course, dissenting views exist. See, for example,

This so-called "dissenting" view deserves more attention:

A Century of Global Stock Markets
Philippe Jorion, William N. Goetzmann
NBER Working Paper No. W7565, February 2000

The expected return on equity capital is possibly the most important driving
factor in asset allocation decisions. Yet, the long-term estimates we
typically use are derived from U.S. data only. There are reasons to
suspects, however, that these estimates of return on capital are subject to
survivorship, as the United States is arguably the most successful
capitalist system in the world; most other countries have been plagued by
political upheaval, war, and financial crises. The purpose of this paper is
to provide estimates of return on capital from long-term histories for world
equity markets. By putting together a variety of sources, we collected a
database of capital appreciation indexes for 39 markets with histories going
back as far as the 1920s. Our results are striking. We find that the United
States has the highest uninterrupted real rate of appreciation of all
countries, at 4.3 percent annually from 1921 to 1996. For other countries,
the median real appreciation rate was 0.8 percent. The high return premium
obtained for U.S. equities therefore appears to be the exception rather than
the rule.

Yes, if you can pick the winners, you can get high returns to stocks.
Otherwise you need pretty thorough international diversification so that
at least some of your portfolio ends up in the "winning" countries.

Robin Hanson
Asst. Prof. Economics, George Mason University
MSN 1D3, Carow Hall, Fairfax VA 22030
703-993-2326 FAX: 703-993-2323

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