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Searching For Lost Decades

Author

Listed:
  • Blake LeBaron

    () (International Business School, Brandeis University)

Abstract

This paper estimates the probability of a ``lost decade'' where equity investments lose value over a ten year period. The findings are a reminder that equity investments are risky even over longer time periods, and investors should take this into consideration when making portfolio choices. It also introduces a simple method to allow the reader to combine beliefs about long run stock returns along with computer simulated return distributions. Finally, it is shown that mistaken perceptions of using arithmetic means could account for some common misconceptions about the chance of losses over a decade.

Suggested Citation

  • Blake LeBaron, 2010. "Searching For Lost Decades," Working Papers 30, Brandeis University, Department of Economics and International Businesss School.
  • Handle: RePEc:brd:wpaper:30
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    File URL: http://www.brandeis.edu/economics/RePEc/brd/doc/Brandeis_WP30.pdf
    File Function: First version, 2010
    Download Restriction: no

    File URL: http://www.brandeis.edu/economics/RePEc/brd/doc/Brandeis_WP30R.pdf
    File Function: Revised version, 2012
    Download Restriction: no

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