Triumph of the Optimists 101 Years of Global Investment Returns

ISBN-10: 0691091943
ISBN-13: 9780691091945
Edition: 2002
List price: $175.00
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Description: Investors have too often extrapolated from recent experience. In the 1950s, who but the most rampant optimist would have dreamt that over the next fifty years the real return on equities would be 9% per year? Yet this is what happened in the U.S.  More...

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Book details

List price: $175.00
Copyright year: 2002
Publisher: Princeton University Press
Publication date: 2/3/2002
Binding: Hardcover
Pages: 352
Size: 9.00" wide x 11.00" long x 1.25" tall
Weight: 3.894
Language: English

Investors have too often extrapolated from recent experience. In the 1950s, who but the most rampant optimist would have dreamt that over the next fifty years the real return on equities would be 9% per year? Yet this is what happened in the U.S. stock market. The optimists triumphed. However, as Don Marquis observed, an optimist is someone who never had much experience. The authors of this book extend our experience across regions and across time. They present a comprehensive and consistent analysis of investment returns for equities, bonds, bills, currencies and inflation, spanning sixteen countries, from the end of the nineteenth century to the beginning of the twenty-first. This is achieved in a clear and simple way, with over 130 color diagrams that make comparison easy. Crucially, the authors analyze total returns, including reinvested income. They show that some historical indexes overstate long-term performance because they are contaminated by survivorship bias and that long-term stock returns are in most countries seriously overestimated, due to a focus on periods that with hindsight are known to have been successful. The book also provides the first comprehensive evidence on the long-term equity risk premium--the reward for bearing the risk of common stocks. The authors reveal whether the United States and United Kingdom have had unusually high stock market returns compared to other countries. The book covers the U.S., the U.K., Japan, France, Germany, Canada, Italy, Spain, Switzerland, Australia, the Netherlands, Sweden, Belgium, Ireland, Denmark, and South Africa. Triumph of the Optimistsis required reading for investment professionals, financial economists, and investors. It will be the definitive reference in the field and consulted for years to come.

Preface
101 years of global investment returns
Introduction and overview
Need for an international perspective
The historical record
Inside the markets
The equity premium
Sixteen countries, one world
World markets: today and yesterday
The world's stock markets today
The world's bond markets today
Why stock and bond markets matter
The world's markets yesterday
The US and UK stock markets: 1900 versus 2000
Industry composition: 1900 versus 2000
Stock market concentration
Summary
Measuring long-term returns
Good indexes and bad
Index design: a case study
Dividends, coverage, and weightings
Easy-data bias in international indexes
Measuring inflation and fixed-income returns
Summary
International capital market history
The US record
The UK record
Stock market returns around the world
Equities compared with bonds and bills
Investment risk and the distribution of annual returns
Risk, diversification, and market risk
Risk comparisons across asset classes and countries
Summary 61
Inflation, interest rates, and bill returns
Inflation in the United States and the United Kingdom
Inflation around the world
US treasury bills and real interest rates
Real interest rates around the world
Summary
Bond returns
US and UK bond returns
Bond returns around the world
Bond maturity premia
Inflation-indexed bonds and the real term premium
Corporate bonds and the default risk premium
Summary
Exchange rates and common-currency returns
Long-run exchange rate behavior
The international monetary system
Long-run purchasing power parity
Deviations from purchasing power parity
Volatility of exchange rates
Common-currency returns on bonds and equities
Summary
International investment
Local market versus currency risk
A twentieth century world index for equities and bonds
Ex post benefits from holding the world index
Correlations between countries
Prospective gains from international diversification
Home bias and constraints on international investment
Summary
Size effects and seasonality in stock returns
The size effect in the United States
The size effect in the United Kingdom
The size effect around the world
The reversal of the size premium
Seasonality and size
Summary
Value and growth in stock returns
Value versus growth in the United States
Value and growth investing in the United Kingdom
The international evidence
Summary
Equity dividends
The impact of income
US and UK dividend growth
Dividend growth around the world
Dividend growth, GDP growth, and real equity returns
Dividend yields around the world and over time
Disappearing dividends
Summary
The equity risk premium
US risk premia relative to bills
Worldwide risk premia relative to bills
US risk premia relative to bonds
Worldwide risk premia relative to bonds
Summary
The prospective risk premium
Why the risk premium matters
How big should the risk premium be?
Measuring the premium
Arithmetic and geometric premia
The changing consensus
History as a guide t

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