IDEAS home Printed from https://ideas.repec.org/a/eee/jimfin/v160y2026ics0261560625001883.html

The risk and reward of investing

Author

Listed:
  • Doeswijk, Ronald
  • Swinkels, Laurens

Abstract

We examine the risks and rewards of investing by constructing a comprehensive market portfolio valued at $150 trillion in global assets and spanning 1970–2022 at a monthly frequency. The monthly frequency allows for a more accurate estimate of investment risks compared to previous studies. Although the Sharpe ratio of the global market portfolio is not much higher than that of equities, it is much more stable over time. In addition, the drawdowns of the global market portfolio are less deep and shorter. When the market portfolio is expressed in currencies other than the U.S. dollar, risks of investing appear larger.

Suggested Citation

  • Doeswijk, Ronald & Swinkels, Laurens, 2026. "The risk and reward of investing," Journal of International Money and Finance, Elsevier, vol. 160(C).
    • Handle: RePEc:eee:jimfin:v:160:y:2026:i:c:s0261560625001883
    DOI: 10.1016/j.jimonfin.2025.103453
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0261560625001883
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jimonfin.2025.103453?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Sheridan Titman, 2013. "Financial Markets and Investment Externalities," Journal of Finance, American Finance Association, vol. 68(4), pages 1307-1329, August.
    2. Kathryn Graddy & Philip E. Margolis, 2011. "Fiddling With Value: Violins As An Investment?," Economic Inquiry, Western Economic Association International, vol. 49(4), pages 1083-1097, October.
    3. Gary Gorton, 2017. "The History and Economics of Safe Assets," Annual Review of Economics, Annual Reviews, vol. 9(1), pages 547-586, September.
    4. Andrew Ang & Bingxu Chen & William N. Goetzmann & Ludovic Phalippou, 2018. "Estimating Private Equity Returns from Limited Partner Cash Flows," Journal of Finance, American Finance Association, vol. 73(4), pages 1751-1783, August.
    5. Hoesli, Martin & Oikarinen, Elias, 2012. "Are REITs real estate? Evidence from international sector level data," Journal of International Money and Finance, Elsevier, vol. 31(7), pages 1823-1850.
    6. Borsboom, Charlotte & Zeisberger, Stefan, 2020. "What makes an investment risky? An analysis of price path characteristics," Journal of Economic Behavior & Organization, Elsevier, vol. 169(C), pages 92-125.
    7. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, March.
    8. Schwert, G William, 1990. "Indexes of U.S. Stock Prices from 1802 to 1987," The Journal of Business, University of Chicago Press, vol. 63(3), pages 399-426, July.
    9. Gary Gorton & Stefan Lewellen & Andrew Metrick, 2012. "The Safe-Asset Share," American Economic Review, American Economic Association, vol. 102(3), pages 101-106, May.
    10. John Lintner, 1965. "Security Prices, Risk, And Maximal Gains From Diversification," Journal of Finance, American Finance Association, vol. 20(4), pages 587-615, December.
    11. Thomas Piketty & Gabriel Zucman, 2014. "Capital is Back: Wealth-Income Ratios in Rich Countries 1700–2010," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(3), pages 1255-1310.
    12. Goetzmann, William N, 1993. "Accounting for Taste: Art and the Financial Markets over Three Centuries," American Economic Review, American Economic Association, vol. 83(5), pages 1370-1376, December.
    13. Ponds, Eduard H. M. & Riel, Bart Van, 2009. "Sharing risk: the Netherlands' new approach to pensions," Journal of Pension Economics and Finance, Cambridge University Press, vol. 8(1), pages 91-105, January.
    14. Tyler Muir, 2017. "Financial Crises and Risk Premia," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(2), pages 765-809.
    15. Jon Danielsson & Marcela Valenzuela & Ilknur Zer, 2018. "Learning from History: Volatility and Financial Crises," The Review of Financial Studies, Society for Financial Studies, vol. 31(7), pages 2774-2805.
    16. John Y. Campbell & Karine Serfaty‐De Medeiros & Luis M. Viceira, 2010. "Global Currency Hedging," Journal of Finance, American Finance Association, vol. 65(1), pages 87-121, February.
    17. Robert J. Barro, 2006. "Rare Disasters and Asset Markets in the Twentieth Century," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(3), pages 823-866.
    18. Felix Holzmeister & Jürgen Huber & Michael Kirchler & Florian Lindner & Utz Weitzel & Stefan Zeisberger, 2020. "What Drives Risk Perception? A Global Survey with Financial Professionals and Laypeople," Management Science, INFORMS, vol. 66(9), pages 3977-4002, September.
    19. Glen, Jack & Jorion, Philippe, 1993. "Currency Hedging for International Portfolios," Journal of Finance, American Finance Association, vol. 48(5), pages 1865-1886, December.
    20. Black, Fischer, 1990. "Equilibrium Exchange Rate Hedging," Journal of Finance, American Finance Association, vol. 45(3), pages 899-907, July.
    21. William N Goetzmann & Christophe Spaenjers & Stijn Van Nieuwerburgh, 2021. "Real and Private-Value Assets [Gendered prices]," The Review of Financial Studies, Society for Financial Studies, vol. 34(8), pages 3497-3526.
    22. Geltner, David Michael, 1991. "Smoothing in Appraisal-Based Returns," The Journal of Real Estate Finance and Economics, Springer, vol. 4(3), pages 327-345, September.
    23. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    24. Doron Avramov & Tarun Chordia & Amit Goyal, 2006. "Liquidity and Autocorrelations in Individual Stock Returns," Journal of Finance, American Finance Association, vol. 61(5), pages 2365-2394, October.
    25. repec:arz:wpaper:eres2012-232 is not listed on IDEAS
    26. Welch, Ivo, 2019. "Reproducing, Extending, Updating, Replicating, Reexamining, and Reconciling," Critical Finance Review, now publishers, vol. 8(1-2), pages 301-304, December.
    27. Sanford J. Grossman & Zhongquan Zhou, 1993. "Optimal Investment Strategies For Controlling Drawdowns," Mathematical Finance, Wiley Blackwell, vol. 3(3), pages 241-276, July.
    28. Angelo Ranaldo & Paul Söderlind, 2010. "Safe Haven Currencies," Review of Finance, European Finance Association, vol. 14(3), pages 385-407.
    29. Roll, Richard, 1977. "A critique of the asset pricing theory's tests Part I: On past and potential testability of the theory," Journal of Financial Economics, Elsevier, vol. 4(2), pages 129-176, March.
    30. J. Tobin, 1958. "Liquidity Preference as Behavior Towards Risk," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 25(2), pages 65-86.
    31. Adler, Michael & Dumas, Bernard, 1983. "International Portfolio Choice and Corporation Finance: A Synthesis," Journal of Finance, American Finance Association, vol. 38(3), pages 925-984, June.
    32. Jacob Boudoukh & Matthew Richardson & Ashwin Thapar & Franklin Wang, 2019. "Optimal Currency Hedging for International Equity Portfolios," Financial Analysts Journal, Taylor & Francis Journals, vol. 75(4), pages 65-83, October.
    33. Kenneth A. Froot, 2019. "Currency Hedging Over Long Horizons," Annals of Economics and Finance, Society for AEF, vol. 20(1), pages 37-66, May.
    34. Thomas Piketty, 2011. "On the Long-Run Evolution of Inheritance: France 1820--2050," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(3), pages 1071-1131.
    35. Benjamin R. Mandel, 2009. "Art as an Investment and Conspicuous Consumption Good," American Economic Review, American Economic Association, vol. 99(4), pages 1653-1663, September.
    36. Sven Klingler & David Lando, 2018. "Safe Haven CDS Premiums," The Review of Financial Studies, Society for Financial Studies, vol. 31(5), pages 1856-1895.
    37. Dumas, Bernard & Solnik, Bruno, 1995. "The World Price of Foreign Exchange Risk," Journal of Finance, American Finance Association, vol. 50(2), pages 445-479, June.
    38. Ronald Doeswijk & Trevin Lam & Laurens Swinkels, 2014. "The Global Multi-Asset Market Portfolio, 1959–2012," Financial Analysts Journal, Taylor & Francis Journals, vol. 70(2), pages 26-41, March.
    39. David Chambers & Christophe Spaenjers & Eva Steiner & Stijn Van Nieuwerburgh, 2021. "The Rate of Return on Real Estate: Long-Run Micro-Level Evidence [Inflation protection from homeownership: Long-run evidence, 1814–2008]," The Review of Financial Studies, Society for Financial Studies, vol. 34(8), pages 3572-3607.
    40. Jianping Mei & Michael Moses, 2002. "Art as an Investment and the Underperformance of Masterpieces," American Economic Review, American Economic Association, vol. 92(5), pages 1656-1668, December.
    41. Sven Klingler & Suresh Sundaresan, 2019. "An Explanation of Negative Swap Spreads: Demand for Duration from Underfunded Pension Plans," Journal of Finance, American Finance Association, vol. 74(2), pages 675-710, April.
    42. Carmen M. Reinhart & Kenneth S. Rogoff, 2011. "From Financial Crash to Debt Crisis," American Economic Review, American Economic Association, vol. 101(5), pages 1676-1706, August.
    43. Piet Eichholtz & Matthijs Korevaar & Thies Lindenthal & Ronan Tallec & Stijn Van Nieuwerburgh, 2021. "The Total Return and Risk to Residential Real Estate [House prices and fundamentals: 355 years of evidence]," The Review of Financial Studies, Society for Financial Studies, vol. 34(8), pages 3608-3646.
    44. Avraham Kamara & Lance Young, 2018. "Yes, the Composition of the Market Portfolio Matters: The Estimated Cost of Equity," Financial Management, Financial Management Association International, vol. 47(4), pages 911-929, December.
    45. Andrew W. Lo, 2002. "The Statistics of Sharpe Ratios," Financial Analysts Journal, Taylor & Francis Journals, vol. 58(4), pages 36-52, July.
    46. David Chambers & Christophe Spaenjers & Eva Maria Steiner, 2020. "The Rate of Return on Real Estate: Long-Run Micro-Level Evidence," Working Papers hal-02896386, HAL.
    47. Xavier Gabaix, 2012. "Variable Rare Disasters: An Exactly Solved Framework for Ten Puzzles in Macro-Finance," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(2), pages 645-700.
    48. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
    49. Barro, Robert J. & Ursúa, José F., 2017. "Stock-market crashes and depressions," Research in Economics, Elsevier, vol. 71(3), pages 384-398.
    50. Alan Moreira & Tyler Muir, 2017. "Volatility-Managed Portfolios," Journal of Finance, American Finance Association, vol. 72(4), pages 1611-1644, August.
    51. Zabarankin, Michael & Pavlikov, Konstantin & Uryasev, Stan, 2014. "Capital Asset Pricing Model (CAPM) with drawdown measure," European Journal of Operational Research, Elsevier, vol. 234(2), pages 508-517.
    52. Dimson, Elroy & Spaenjers, Christophe, 2011. "Ex post: The investment performance of collectible stamps," Journal of Financial Economics, Elsevier, vol. 100(2), pages 443-458, May.
    53. repec:hal:pseose:halshs-01109372 is not listed on IDEAS
    54. Trimborn, Simon & Härdle, Wolfgang Karl, 2018. "CRIX an Index for cryptocurrencies," Journal of Empirical Finance, Elsevier, vol. 49(C), pages 107-122.
    55. Habib, Maurizio M. & Stracca, Livio, 2012. "Getting beyond carry trade: What makes a safe haven currency?," Journal of International Economics, Elsevier, vol. 87(1), pages 50-64.
    56. Hans Geboers & Benoît Depaire & Jan Annaert, 2023. "A review on drawdown risk measures and their implications for risk management," Journal of Economic Surveys, Wiley Blackwell, vol. 37(3), pages 865-889, July.
    57. Koedijk, Kees G. & Kool, Clemens J. M. & Schotman, Peter C. & van Dijk, Mathijs A., 2002. "The cost of capital in international financial markets: local or global?," Journal of International Money and Finance, Elsevier, vol. 21(6), pages 905-929, November.
    58. Timothy Riley & Qing Yan, 2022. "Maximum Drawdown as Predictor of Mutual Fund Performance and Flows," Financial Analysts Journal, Taylor & Francis Journals, vol. 78(4), pages 59-76, October.
    59. Opie, Wei & Riddiough, Steven J., 2020. "Global currency hedging with common risk factors," Journal of Financial Economics, Elsevier, vol. 136(3), pages 780-805.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Opie, Wei & Riddiough, Steven J., 2020. "Global currency hedging with common risk factors," Journal of Financial Economics, Elsevier, vol. 136(3), pages 780-805.
    2. Stijn Claessens & M Ayhan Kose, 2018. "Frontiers of macrofinancial linkages," BIS Papers, Bank for International Settlements, number 95.
    3. Li, Yuexin & Ma, X. & Renneboog, Luc, 2021. "Pricing Art and the Art of Pricing : On Returns and Risk in Art Auction Markets," Other publications TiSEM 8d25ec25-78dc-4cdc-b054-f, Tilburg University, School of Economics and Management.
    4. Haselmann, Rainer & Herwartz, Helmut, 2008. "Portfolio performance and the Euro: Prospects for new potential EMU members," Journal of International Money and Finance, Elsevier, vol. 27(2), pages 314-330, March.
    5. Dangl, Thomas & Randl, Otto & Zechner, Josef, 2016. "Risk control in asset management: Motives and concepts," CFS Working Paper Series 546, Center for Financial Studies (CFS).
    6. Baltussen, Guido & Swinkels, Laurens & Van Vliet, Pim, 2021. "Global factor premiums," Journal of Financial Economics, Elsevier, vol. 142(3), pages 1128-1154.
    7. C. Mitchell Conover & Luis Garcia‐Feijoo & Brian Silverstein & Andrew C. Szakmary, 2025. "The hedging of currency risk for U.S. equity investors," Review of Financial Economics, John Wiley & Sons, vol. 43(4), pages 578-607, October.
    8. Ulrych, Urban & Vasiljević, Nikola, 2025. "Global currency hedging with ambiguity," Journal of Banking & Finance, Elsevier, vol. 172(C).
    9. Dimson, Elroy & Rousseau, Peter L. & Spaenjers, Christophe, 2015. "The price of wine," Journal of Financial Economics, Elsevier, vol. 118(2), pages 431-449.
    10. Géraldine David & Yuexin Li & Kim Oosterlinck & Luc Renneboog, 2024. "Art in times of crisis," Economic History Review, Economic History Society, vol. 77(4), pages 1362-1413, November.
    11. Gilles Boevi Koumou, 2020. "Diversification and portfolio theory: a review," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 34(3), pages 267-312, September.
    12. Chan, Kalok & Yang, Jian & Zhou, Yinggang, 2018. "Conditional co-skewness and safe-haven currencies: A regime switching approach," Journal of Empirical Finance, Elsevier, vol. 48(C), pages 58-80.
    13. Longmuir, Maximilian, 2026. "Return Heterogeneity vs. Participation: The Big Levers of Financial Wealth Inequality?," SocArXiv 7hkj6_v1, Center for Open Science.
    14. Alexander, Gordon J. & Baptista, Alexandre M., 2009. "Stress testing by financial intermediaries: Implications for portfolio selection and asset pricing," Journal of Financial Intermediation, Elsevier, vol. 18(1), pages 65-92, January.
    15. Amit Goyal, 2012. "Empirical cross-sectional asset pricing: a survey," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 26(1), pages 3-38, March.
    16. Turner, John D., 2014. "Financial history and financial economics," QUCEH Working Paper Series 14-03, Queen's University Belfast, Queen's University Centre for Economic History.
    17. John Y. Campbell & Karine Serfaty‐De Medeiros & Luis M. Viceira, 2010. "Global Currency Hedging," Journal of Finance, American Finance Association, vol. 65(1), pages 87-121, February.
    18. Stijn Claessens & M Ayhan Kose, 2017. "Asset prices and macroeconomic outcomes: a survey," BIS Working Papers 676, Bank for International Settlements.
    19. Arthur Korteweg & Roman Kräussl & Patrick Verwijmeren, 2016. "Does it Pay to Invest in Art? A Selection-Corrected Returns Perspective," The Review of Financial Studies, Society for Financial Studies, vol. 29(4), pages 1007-1038.
    20. John Y. Campbell, 2000. "Asset Pricing at the Millennium," Journal of Finance, American Finance Association, vol. 55(4), pages 1515-1567, August.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jimfin:v:160:y:2026:i:c:s0261560625001883. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30443 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.