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Searching For Lost Decades

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Author Info

  • Blake LeBaron

    ()
    (International Business School, Brandeis University)

Abstract

This paper estimates the probability of a ``lost decade'' where equity investments lose value over a ten year period. The findings are a reminder that equity investments are risky even over longer time periods, and investors should take this into consideration when making portfolio choices. It also introduces a simple method to allow the reader to combine beliefs about long run stock returns along with computer simulated return distributions. Finally, it is shown that mistaken perceptions of using arithmetic means could account for some common misconceptions about the chance of losses over a decade.

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File URL: http://www.brandeis.edu/departments/economics/RePEc/brd/doc/Brandeis_WP30.pdf
File Function: First version, 2010
Download Restriction: no

File URL: http://www.brandeis.edu/departments/economics/RePEc/brd/doc/Brandeis_WP30R.pdf
File Function: Revised version, 2012
Download Restriction: no

Bibliographic Info

Paper provided by Brandeis University, Department of Economics and International Businesss School in its series Working Papers with number 30.

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Length: 19 pages
Date of creation: Jun 2010
Date of revision:
Handle: RePEc:brd:wpaper:30

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Postal: MS032, P.O. Box 9110, Waltham, MA 02454-9110
Web page: http://www.brandeis.edu/departments/economics/
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