Long-Run Global Capital Market Returns and Risk Premia

Abstract:     
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 knowledge of financial market performance across regions and across time. We 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. Our indexes are chosen to avoid survivorship bias, and all returns include reinvested income. This enables us to study topics such as the size effect, the value premium, interest rates and inflation, dividend growth, and the equity risk premium over more than a century.

The markets we cover comprise two in North America, seven in the Euro area, four others in Europe, two in the Asia-Pacific region, and one in Africa. We present in this extract from our work a summary of capital market history in all sixteen countries. We find that over the long haul stocks beat bonds in every market, and bonds beat bills almost everywhere.

The full study is forthcoming as a book, 'Triumph of the Optimists: 101 Years of Global Investment Returns', to be published by Princeton University Press in February/March 2002

Number of Pages in PDF File: 19

Keywords: Long-term returns, equity risk premium, financial market history, survivor bias

JEL Classification: F3, G10, G12, G23, N2

working papers series