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Debt and Equity Returns Revisited

In: Financing Corporate Capital Formation

Listed author(s):
  • Patric H. Hendershott

This paper examines semiannual ex post returns on corporate equities and bonds and six-month Treasury bills over the 1953-84 period with special emphasis on whether returns so far in the 1980s have been usual relative to the previous quarter century. The performance of the equity and bond markets in the 1980s has not been at all unusual, with equity returns being driven by the business cycle and bond returns by unexpected changes in new issue Treasury bond rates. Real six-month Treasury rates have averaged 5½ percentage points,far above the 2 percentage point average since 1953 but about the same as in the 1926-30 period. On an after-tax (roughly 40 percent) basis,however, real bill rate have been in line with the 1950s and 1960s, but significantly above the abnormally low rates in the 1970s.

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This chapter was published in:
  • Benjamin M. Friedman, 1986. "Financing Corporate Capital Formation," NBER Books, National Bureau of Economic Research, Inc, number frie86-1, November.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 7938.
    Handle: RePEc:nbr:nberch:7938
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    National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.

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    1. Brennan, Michael J. & Schwartz, Eduardo S., 1982. "An Equilibrium Model of Bond Pricing and a Test of Market Efficiency," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 17(03), pages 301-329, September.
    2. Wilcox, James A, 1983. "Why Real Interest Rates Were So Low in the 1970's," American Economic Review, American Economic Association, vol. 73(1), pages 44-53, March.
    3. Robert J. Shiller & John Y. Campbell & Kermit L. Schoenholtz, 1983. "Forward Rates and Future Policy: Interpreting the Term Structure of Interest Rates," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 14(1), pages 173-224.
    4. Peter J. Elmer & Patric H. Hendershott, 1984. "Relative Factor Price Changes and Equity Prices," NBER Working Papers 1449, National Bureau of Economic Research, Inc.
    5. John H. Makin & Vito Tanzi, 1983. "The Level and Volatility of Interest Rates in the United States: The Roles of Expected Inflation, Real Rates, and Taxes," NBER Working Papers 1167, National Bureau of Economic Research, Inc.
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