Siegel versus Arnott
Posted: Thu Apr 08, 2004 10:16 am
How's this for a good reason for the equity premium to change: Everyone now knows that stocks "provide the highest long-term returns" - once everyone knows this, and buys stocks, their prices go up, and future returns go down. When everyone starts realizing that stocks are good long-term deals, they will cease to be such good long-term deals (like right now for example).Forecasting the equity premium is a competitive activity in the academic and practitioner world. The bulls have history on their side. Whether you look at the last 50, 100, or 200 years, real stock returns have been surprisingly constant, registering about a 7 percent annualized gain after inflation.
The amount by which they beat real bond returns have averaged between 4.5 percent and 5.5 percent over the last 75 years, according to Siegel. The optimists wonder why that should change.
Code: Select all
Start 10 20 30 40 50 60
1871 9.58 6.10 6.80 6.96 6.31 7.52
1921 13.78 7.91 9.62 11.00 10.34 9.93
1931 2.34 7.59 10.09 9.50 9.18 9.88
1971 7.90 10.63 12.80
1981 13.44 15.33
1991 17.26
Code: Select all
Start 10 20 30 40 50 60
1871 12.69 8.61 8.53 7.76 5.42 7.09
1921 15.83 9.53 8.56 9.76 8.72 7.18
1931 3.57 5.10 7.80 7.02 5.53 6.03
1971 (0.22) 4.09 7.39
1981 8.59 11.41
1991 14.29
Code: Select all
Start 10 20 30 40 50 60
1871 3.38 0.43 1.56 1.86 0.95 2.16
1921 8.44 1.99 3.71 5.46 5.29 5.00
1931 (4.07) 1.43 4.49 4.52 4.33 5.15
1971 3.59 6.44 9.27
1981 9.36 12.23
1991 15.16
Code: Select all
Start 10 20 30 40 50 60
1871 6.31 2.81 3.20 2.63 0.10 1.74
1921 10.38 3.53 2.71 4.28 3.74 2.37
1931 (2.91) (0.92) 2.33 2.15 0.84 1.47
1971 (4.20) 0.15 4.03
1981 4.69 8.40
1991 12.24
Code: Select all
Start 10 20 30 40 50 60
1871 12.47 8.40 8.31 7.55 5.21 6.87
1921 15.60 9.31 8.34 9.54 8.51 6.97
1931 3.37 4.89 7.59 6.80 5.32 5.82
1971 (0.42) 3.88 7.17
1981 8.38 11.18
1991 14.06