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Empirical Probability Distributions of Real Return from Swedish Stock and Bond Portfolios

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  • Graflund, Andreas

    ()
    (Department of Economics, Lund University)

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    Abstract

    This paper introduces a new non-parametric approach to integrate empirical probability functions of the real return for different investment horizons for five portfolios of Swedish stocks and bonds. In our setting the problem reduces to generating new generalizations from an empirical Markov chain. We find that the stocks yield a real return of about 7.5% and bonds about 3.0%. Our results suggest that an investor ought to avoid bonds in the long run. Finally if the investors goal is to minimize the risk of capital destruction the preferable long-run passive portfolio is a mix of bonds and stocks.

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    File URL: http://project.nek.lu.se/publications/workpap/Papers/WP01_16.pdf
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    Bibliographic Info

    Paper provided by Lund University, Department of Economics in its series Working Papers with number 2001:16.

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    Length: 25 pages
    Date of creation: 20 Sep 2001
    Date of revision: 30 Jan 2002
    Handle: RePEc:hhs:lunewp:2001_016

    Contact details of provider:
    Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden
    Phone: +46 +46 222 0000
    Fax: +46 +46 2224613
    Web page: http://www.nek.lu.se/en
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    Related research

    Keywords: Empirical distribution; stock returns; bond returns; real return; markovian bootstrap; MCMC;

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    1. Paparoditis, Efstathios & Politis, Dimitris N., 2001. "A Markovian Local Resampling Scheme For Nonparametric Estimators In Time Series Analysis," Econometric Theory, Cambridge University Press, vol. 17(03), pages 540-566, June.
    2. Hansson, Bjorn & Hordahl, Peter, 1997. " Changing Risk Premia: Evidence from a Small Open Economy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(2), pages 335-50, June.
    3. Fishburn, Peter C, 1977. "Mean-Risk Analysis with Risk Associated with Below-Target Returns," American Economic Review, American Economic Association, vol. 67(2), pages 116-26, March.
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