The Long-Horizon Returns of Stocks, Bonds, and Bills: Evidence from a Broad Sample of Developed Markets
90 Pages Posted: 18 Nov 2021
Date Written: November 15, 2021
We characterize the joint distribution of long-horizon returns on domestic stocks, international stocks, bonds, and bills. We study 38 developed countries with a sample period of 1890 to 2019, and our data formation procedures mitigate survivor and easy data biases. Bootstrap estimates of the joint distribution reveal substantial uncertainty in asset payoffs and large real loss probabilities over a 30-year horizon for domestic stocks (13%), bonds (27%), and bills (37%). The distribution features joint tail risk, such that simultaneous real losses across multiple asset classes over long horizons are not rare. The potential losses are most pronounced when current asset prices are high.
Keywords: Long-horizon returns, loss probability, survivor bias, easy data bias
JEL Classification: C15, D31, G10, G11, G12, G15, G17, N20
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