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A Century of Global Stock Markets

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  • William Goetzmann
  • Philippe Jorion

Abstract

The 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 perce

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Bibliographic Info

Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm53.

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Date of creation: 01 Feb 1997
Date of revision: 01 Aug 2000
Handle: RePEc:ysm:somwrk:ysm53

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  1. Philippe Jorion & William N. Goetzmann, 1998. "Re-Emerging Markets," Yale School of Management Working Papers ysm111, Yale School of Management.
  2. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
  3. Epstein, Larry G & Zin, Stanley E, 1991. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: An Empirical Analysis," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 263-86, April.
  4. Philippe Jorion & William N. Goetzmann, 1998. "A Longer Look at Dividend Yields," Yale School of Management Working Papers ysm41, Yale School of Management.
  5. Jobson, J D & Korkie, Bob M, 1981. "Performance Hypothesis Testing with the Sharpe and Treynor Measures," Journal of Finance, American Finance Association, vol. 36(4), pages 889-908, September.
  6. Goetzmann, William Nelson, 1993. "Patterns in Three Centuries of Stock Market Prices," The Journal of Business, University of Chicago Press, vol. 66(2), pages 249-70, April.
  7. Rietz, Thomas A., 1988. "The equity risk premium a solution," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 117-131, July.
  8. Bansal, Ravi & Coleman, Wilbur John, II, 1996. "A Monetary Explanation of the Equity Premium, Term Premium, and Risk-Free Rate Puzzles," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1135-71, December.
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Cited by:
  1. Gordon M. Bodnar & Bernard Dumas & Richard D. Marston, 2003. "Cross-Border Valuation: The International Cost of Equity Capital," NBER Working Papers 10115, National Bureau of Economic Research, Inc.
  2. William Goetzmann & Philippe Jorion, 1998. "Re-emerging Markets," Yale School of Management Working Papers ysm50, Yale School of Management, revised 01 Aug 2000.
  3. Alier, Max & Vittas, Dimitri, 2000. "Personal pension plans and stock market volatility," Policy Research Working Paper Series 2463, The World Bank.
  4. Blake, David & Cairns, Andrew J. G. & Dowd, Kevin, 2001. "Pensionmetrics: stochastic pension plan design and value-at-risk during the accumulation phase," Insurance: Mathematics and Economics, Elsevier, vol. 29(2), pages 187-215, October.
  5. Jean-Pierre DANTHINE & John B. DONALDSON & Paolo SICONOLFI, 2005. "Distribution Risk and Equity Returns," FAME Research Paper Series rp161, International Center for Financial Asset Management and Engineering.
  6. Costa, Jose Carlos & Mata, Maria Eugenia & Justino, David, 2009. "Portuguese Average Cost Of Capital," FEUNL Working Paper Series wp543, Universidade Nova de Lisboa, Faculdade de Economia.

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