The Tech Industry or the Regulated Industry: Which One has the True Glamour Stocks?

Abstract:     
This study directly compares the performance of tech industry stocks to regulated industry stocks from 1963 to 2002. The stock return performance of the regulated industry is similar to, and in many ways superior to, the performance of the technology industry. For example, $1 invested in 1963 grows to $127 if invested in tech stocks over the 40-year sample period and $117 if invested in regulated stocks, both easily outperforming T-bills, the equally-weighted CRSP index, and the S&P 500. Despite the similar return performance, the regulated industry contains substantially lower risk, as measured by beta and return volatility, versus the technology industry. In addition, the impressive performance of tech stocks is dependent upon two years of particularly high returns (1967 and 1999). The results have interesting implications for traditional notions of risk and for attitudes toward investing in regulated industry stocks.

Keywords: tech stocks, utilities, bank stocks, market efficiency, long-term stock returns, market efficiency

JEL Classifications: G11, G14

Working Paper Series