A Century of Global Stock Markets
AbstractThe expected return on equity capital is possibly the most important driving factor in asset allocation decisions. Yet, the long-term estimates we typically use are derived from U.S. data only. There are reasons to suspect, however, that these estimates of return on capital are subject to survivorship, as the United States is arguably the most successful capitalist system in the world; most other countries have been plagued by political upheaval, war, and financial crises. The purpose of this paper is to provide estimates of return on capital from long-term histories for world equity markets. By putting together a variety of sources, we collected a database of capital appreciation indexes for 39 markets with histories going back as far back as the l920s. Our results are striking. We find that the United States has by far the highest uninterrupted real rate of appreciation of all countries, at about 5 percent annually. For other countries, the median real appreciation rate is about 1.5 percent. The high return premium obtained for U.S. equities therefore appears to be the exception rather than the rule. Our global databases also allow us to reconstruct monthly real and dollar-valued capital appreciation indices for global markets, providing further evidence on the benefits of international diversification.
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Bibliographic InfoPaper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm16.
Date of creation: 05 Mar 2004
Date of revision:
Other versions of this item:
- William N. Goetzmann & Philippe Jorion, 1997. "A Century of Global Stock Markets," NBER Working Papers 5901, National Bureau of Economic Research, Inc.
- Philippe Jorion & William N. Goetzmann, 2000. "A Century of Global Stock Markets," NBER Working Papers 7565, National Bureau of Economic Research, Inc.
- William Goetzmann & Philippe Jorion, 1997. "A Century of Global Stock Markets," Yale School of Management Working Papers ysm53, Yale School of Management, revised 01 Aug 2000.
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- N2 - Economic History - - Financial Markets and Institutions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-03-22 (All new papers)
- NEP-CFN-2004-03-22 (Corporate Finance)
- NEP-DEV-2004-03-22 (Development)
- NEP-FIN-2004-03-22 (Finance)
- NEP-FMK-2004-03-22 (Financial Markets)
- NEP-IFN-2004-03-22 (International Finance)
- NEP-RMG-2004-03-22 (Risk Management)
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