This paper examines unconditional long-run expected returns for US equity and bond markets and contrast returns with those of four large economies. We confirm earlier studies on the US and find that, as a result of repricing, actual equity returns have exceeded what could reasonably be expected. As bonds returned less, the excess return was spectacular. With the exception of the UK, investors in other countries were less fortunate. Our results lend credibility to the argument that analysis using US historical data is overly comforting. Survivorship bias seems clearly an issue. Based on current valuations, expected returns on US equities are low and actual returns might well disappoint.
|Status||Published - 2004|