Friday, January 9, 2009

Long Bonds / Short Equities Redux

Back in October, EconomPic Data presented some amazing data that showed there had been no equity premium over the previous 11 3/4 years (i.e. no excess return for equities over bonds). With the continued sell-off in equities and a rebound in credit markets, the Lehman Barclays Capital Aggregate Bond Index has now provided an equal return to the S&P 500 over the PAST 19 YEARS INCLUDING REINVESTED DIVIDENDS / COUPONS!

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3 comments:

  1. AnonymousJanuary 9, 2009 at 9:00 AM

    Thanks a lot for your job, mate!

    ReplyDelete
  2. z... ! ...zJanuary 11, 2009 at 9:06 PM

    I would argue this is how it should be. Broad index investing shouldn't provide a premium over a long time series if markets are operating efficiently. Creating alpha should require something other than selecting a trend line and waiting 20 years.

    ReplyDelete
  3. JakeJanuary 12, 2009 at 4:22 AM

    i think you are misinterpreting the chart. it shows bonds vs. equities over a 19 year period. if the two asset classes "should" have similar returns over a long time frame, then bonds are the way to go as they have much lower risk (higher in the capital structure) and lower volatility.

    one way to think about equities is they are a levered form of debt. so they should have greater return characteristics.

    in other words, i couldn't disagree more.

    ReplyDelete