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What Are Stock Investors’ Actual Historical Returns? Evidence from Dollar-Weighted Returns


  • Ilia D. Dichev


The existing literature typically does not differentiate between security returns and the returns of investors in these securities. This study clarifies that investor and security returns differ because of the timing and magnitude of investor capital flows into and out of these securities. The empirical results indicate that actual investor returns are systematically lower than buy-and-hold returns for nearly all major international stock markets. These results imply that the historical equity premium and the cost of equity capital are likely lower than previously thought. (JEL G11, G12, G15)

Suggested Citation

  • Ilia D. Dichev, 2007. "What Are Stock Investors’ Actual Historical Returns? Evidence from Dollar-Weighted Returns," American Economic Review, American Economic Association, vol. 97(1), pages 386-401, March.
  • Handle: RePEc:aea:aecrev:v:97:y:2007:i:1:p:386-401 Note: DOI: 10.1257/aer.97.1.386

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    References listed on IDEAS

    1. Jay R. Ritter & Ivo Welch, 2002. "A Review of IPO Activity, Pricing, and Allocations," Journal of Finance, American Finance Association, vol. 57(4), pages 1795-1828, August.
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    7. James Claus, 2001. "Equity Premia as Low as Three Percent? Evidence from Analysts' Earnings Forecasts for Domestic and International Stock Markets," Journal of Finance, American Finance Association, vol. 56(5), pages 1629-1666, October.
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    Cited by:

    1. Kaustia, Markku & Rantapuska, Elias, 2012. "Rational and behavioral motives to trade: Evidence from reinvestment of dividends and tender offer proceeds," Journal of Banking & Finance, Elsevier, vol. 36(8), pages 2366-2378.
    2. Ben-Rephael, Azi & Kandel, Shmuel & Wohl, Avi, 2012. "Measuring investor sentiment with mutual fund flows," Journal of Financial Economics, Elsevier, vol. 104(2), pages 363-382.
    3. Venanzi, Daniela, 2016. "The performance of the Italian mutual funds: Does the metric matter?," Research in International Business and Finance, Elsevier, vol. 37(C), pages 406-421.
    4. Ciccotello, Conrad & Greene, Jason & Ling, Leng & Rakowski, David, 2011. "Capacity and factor timing effects in active portfoliomanagement," Journal of Financial Markets, Elsevier, vol. 14(2), pages 277-300, May.
    5. Richard Lu, 2016. "The Returns and Risk of Dynamic Investment Strategies: A Simulation Comparison," International Journal of Business and Economics, College of Business and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 15(1), pages 79-83, June.
    6. Sloan, Richard G. & You, Haifeng, 2015. "Wealth transfers via equity transactions," Journal of Financial Economics, Elsevier, vol. 118(1), pages 93-112.
    7. Keswani, Aneel & Stolin, David, 2008. "Dollar-weighted returns to stock investors: A new look at the evidence," Finance Research Letters, Elsevier, vol. 5(4), pages 228-235, December.
    8. Zhang, Yuzhao, 2014. "Contrarian flows, consumption and expected stock returns," Journal of Banking & Finance, Elsevier, vol. 42(C), pages 101-111.
    9. Dichev, Ilia D. & Yu, Gwen, 2011. "Higher risk, lower returns: What hedge fund investors really earn," Journal of Financial Economics, Elsevier, vol. 100(2), pages 248-263, May.
    10. Muñoz, Fernando, 2016. "Cash flow timing skills of socially responsible mutual fund investors," International Review of Financial Analysis, Elsevier, vol. 48(C), pages 110-124.
    11. Dvorak Tomas, 2012. "Timing of Retirement Plan Contributions and Investment Returns: The Case of Defined Benefit versus Defined Contribution," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-26, May.
    12. Chalmers, John & Kaul, Aditya & Phillips, Blake, 2013. "The wisdom of crowds: Mutual fund investors’ aggregate asset allocation decisions," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3318-3333.
    13. Bradley Jones, 2016. "Institutionalizing Countercyclical Investment; A Framework for Long-term Asset Owners," IMF Working Papers 16/38, International Monetary Fund.

    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets


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