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Long-Run Global Capital Market Returns and Risk Premia

19 Pages Posted: 5 Feb 2002  

Elroy Dimson

University of Cambridge - Judge Business School; London Business School

Paul Marsh

London Business School - Institute of Finance and Accounting

Mike Staunton

London Business School - Institute of Finance and Accounting

Date Written: February 2002

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

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

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

Suggested Citation

Dimson, Elroy and Marsh, Paul and Staunton, Mike, Long-Run Global Capital Market Returns and Risk Premia (February 2002). London Business School Accounting Subject Area No. 035. Available at SSRN: https://ssrn.com/abstract=299335 or http://dx.doi.org/10.2139/ssrn.299335

Elroy Dimson (Contact Author)

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom
+44 20 7000 8212 (Phone)
+44 700 607 7390 (Fax)

London Business School ( email )

Sussex Place
Regent's Park
London, NW1 4SA
United Kingdom
44 20 7000 7000 (Phone)
44 700 607 7390 (Fax)

Paul Marsh

London Business School - Institute of Finance and Accounting ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom

Mike Staunton

London Business School - Institute of Finance and Accounting ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom

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