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Do Stocks Outperform Treasury Bills?

50 Pages Posted: 19 Jan 2017 Last revised: 22 Nov 2017

Hendrik Bessembinder

Arizona State University

Date Written: November 21, 2017

Abstract

Four out of every seven common stocks that have appeared in the CRSP database since 1926 have lifetime buy-and-hold returns less than one-month Treasuries. When stated in terms of lifetime dollar wealth creation, the best-performing four percent of listed companies explain the net gain for the entire U.S. stock market since 1926, as other stocks collectively matched Treasury bills. These results highlight the important role of positive skewness in the distribution of individual stock returns, attributable both to skewness in monthly returns and to the effects of compounding. The results help to explain why poorly-diversified active strategies most often underperform market averages.

Keywords: Long horizon returns, return skewness, stock market wealth creation

Suggested Citation

Bessembinder, Hendrik, Do Stocks Outperform Treasury Bills? (November 21, 2017). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2900447

Hendrik Bessembinder (Contact Author)

Arizona State University ( email )

PO Box 873906
Tempe, AZ 85207
United States

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