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August 18, 2004

Asset Returns, 1928 to 2002

Asset Returns I came across a table of real annual yields from 1926 to 2002. The source and meaning were unclear enough that I won't even give them, but here are the numbers:

T-Bills 0.8
Long Government bonds: 2.9
Long corporate bonds: 3.2
Large company stocks 9.0
Small Company stocks 13.5

I'm not sure whether this will continue or not. Economists refer to the strangely high return on stocks relative to bonds as the Equity Premium Puzzle. Quite possibly, the stock price run-up of the late 1990's eliminated that puzzle, since stock prices rose high enough that they will likely not have such high returns in the future. Still, I'm investing in stocks now, after my retreat and shorting during the bubble.

Posted by erasmuse at August 18, 2004 10:23 AM

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Tracked on August 24, 2004 11:09 PM


Just going from memory, I seem to recall the Minnesota macro folks (Mcgrattan, Prescott, etc.) demonstrating that the equity premium has vanished, and moreover was caused by strange govt policy earlier in the century.

Posted by: randy at September 2, 2004 12:39 PM

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