Are Stocks Riskier than Bonds? Not If You Assess Risk Like Warren Buffett

7 Pages Posted: 21 Jul 2012

Date Written: July 20, 2012

Abstract

Academics, practitioners, and investors essentially agree that in the short term stocks are riskier than bonds. Which of these two assets is riskier in the long term, however, is controversial. This short article explores this issue by assessing long-term risk as suggested by Warren Buffett; that is, with the probability of losing purchasing power. If risk is viewed this way, a comprehensive dataset spanning over 19 countries and 110 years clearly suggests that in the long term stocks are less risky than bonds.

Keywords: Long-term risk, short-term risk, shortfall risk, Buffett

JEL Classification: G11

Suggested Citation

Estrada, Javier, Are Stocks Riskier than Bonds? Not If You Assess Risk Like Warren Buffett (July 20, 2012). Available at SSRN: https://ssrn.com/abstract=2114324 or http://dx.doi.org/10.2139/ssrn.2114324

Javier Estrada (Contact Author)

IESE Business School ( email )

IESE Business School
Av. Pearson 21
Barcelona, 08034
Spain
+34 93 253 4200 (Phone)
+34 93 253 4343 (Fax)

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