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Triumph of the Optimists : 101 Years of Global Investment Returns - Elroy Dimson

Triumph of the Optimists

101 Years of Global Investment Returns

Hardcover Published: 9th January 2002
ISBN: 9780691091945
Number Of Pages: 352

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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 Optimists" is required reading for investment professionals, financial economists, and investors. It will be the definitive reference in the field and consulted for years to come.

"At the very least, this [book] suggests that the recent blind adherence to the cult of the equity needs to be questioned and that the strategic weighting of bonds in institutional portfolios should be increased."--Philip Coggan, Financial Times "A model of how investor research should be carried out... Like most great books, Triumph of the Optimists has us saying 'Wow!' and 'Unbelievable!' with startling regularity... This is a book that belongs on every investor's bookshelf."--Victor Niederhoffer and Laurel Kenner, "Money" columnists, msn.com "Connoisseurs of financial history will find plenty to enjoy in Triumph of the Optimists... The evidence produced by Mr. Dimson and his colleagues is striking, [and]... these issues are more than just academic... A provocative lesson."--Matthew Lynn, Financial Times "By far the most important investment book in years...It is the best and most complete source of data yet available... If you spend an hour with it and don't learn anything worth the price then you're truly lousy at learning about markets... Right now, buying this book makes more sense than buying stocks."--Ken Fisher, Bloomberg Money "A brilliant new book."--Jason Zweig, Time "Our favorite book on global stock market performance... [It] epitomizes outstanding investment research... Unless intelligent life is discovered on another planet and a stock market is found to have been operating there for some centuries, it is unlikely that much new data can be brought to bear on the issue of long-run stock returns. Triumph of the Optimists may well be the last word on the subject for some time to come."--Active Trader magazine

Prefacep. xi
101 years of global investment returnsp. 1
Introduction and overviewp. 3
Need for an international perspectivep. 3
The historical recordp. 5
Inside the marketsp. 7
The equity premiump. 8
Sixteen countries, one worldp. 10
World markets: today and yesterdayp. 11
The world's stock markets todayp. 11
The world's bond markets todayp. 14
Why stock and bond markets matterp. 18
The world's markets yesterdayp. 19
The US and UK stock markets: 1900 versus 2000p. 23
Industry composition: 1900 versus 2000p. 23
Stock market concentrationp. 28
Summaryp. 32
Measuring long-term returnsp. 34
Good indexes and badp. 34
Index design: a case studyp. 36
Dividends, coverage, and weightingsp. 38
Easy-data bias in international indexesp. 40
Measuring inflation and fixed-income returnsp. 43
Summaryp. 44
International capital market historyp. 45
The US recordp. 45
The UK recordp. 48
Stock market returns around the worldp. 50
Equities compared with bonds and billsp. 51
Investment risk and the distribution of annual returnsp. 54
Risk, diversification, and market riskp. 56
Risk comparisons across asset classes and countriesp. 59
Summary 61
Inflation, interest rates, and bill returnsp. 63
Inflation in the United States and the United Kingdomp. 63
Inflation around the worldp. 65
US treasury bills and real interest ratesp. 68
Real interest rates around the worldp. 71
Summaryp. 72
Bond returnsp. 74
US and UK bond returnsp. 74
Bond returns around the worldp. 79
Bond maturity premiap. 81
Inflation-indexed bonds and the real term premiump. 84
Corporate bonds and the default risk premiump. 87
Summaryp. 89
Exchange rates and common-currency returnsp. 91
Long-run exchange rate behaviorp. 91
The international monetary systemp. 93
Long-run purchasing power parityp. 95
Deviations from purchasing power parityp. 96
Volatility of exchange ratesp. 98
Common-currency returns on bonds and equitiesp. 100
Summaryp. 103
International investmentp. 105
Local market versus currency riskp. 105
A twentieth century world index for equities and bondsp. 108
Ex post benefits from holding the world indexp. 111
Correlations between countriesp. 114
Prospective gains from international diversificationp. 117
Home bias and constraints on international investmentp. 120
Summaryp. 123
Size effects and seasonality in stock returnsp. 124
The size effect in the United Statesp. 124
The size effect in the United Kingdomp. 126
The size effect around the worldp. 129
The reversal of the size premiump. 131
Seasonality and sizep. 135
Summaryp. 138
Value and growth in stock returnsp. 139
Value versus growth in the United Statesp. 139
Value and growth investing in the United Kingdomp. 142
The international evidencep. 145
Summaryp. 148
Equity dividendsp. 149
The impact of incomep. 149
US and UK dividend growthp. 152
Dividend growth around the worldp. 154
Dividend growth, GDP growth, and real equity returnsp. 155
Dividend yields around the world and over timep. 157
Disappearing dividendsp. 158
Summaryp. 161
The equity risk premiump. 163
US risk premia relative to billsp. 163
Worldwide risk premia relative to billsp. 166
US risk premia relative to bondsp. 169
Worldwide risk premia relative to bondsp. 171
Summaryp. 173
The prospective risk premiump. 176
Why the risk premium mattersp. 177
How big should the risk premium be?p. 179
Measuring the premiump. 181
Arithmetic and geometric premiap. 183
The changing consensusp. 185
History as a guide t
Table of Contents provided by Publisher. All Rights Reserved.

ISBN: 9780691091945
ISBN-10: 0691091943
Audience: Tertiary; University or College
Format: Hardcover
Language: English
Number Of Pages: 352
Published: 9th January 2002
Publisher: Princeton University Press
Country of Publication: US
Dimensions (cm): 27.9 x 21.6  x 3.18
Weight (kg): 1.47