Triumph of the Optimists
101 Years of Global Investment Returns
1st Edition
Published on 16. June 2015
352 pages
978-1-4008-2947-7 (ISBN)
Description
"Brilliant."-Time
"By far the most important investment book in years."-Bloomberg Money
"A book that belongs on every investor's bookshelf."-MSN.com
An essential and authoritative account of a century of investment returns in sixteen countries-the U.S., the U.K., Japan, France, Germany, Canada, Italy, Spain, Switzerland, Australia, the Netherlands, Sweden, Belgium, Ireland, Denmark, and South Africa
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. In Triumph of the Optimists, renowned investment authorities Elroy Dimson, Paul Marsh, and Mike Staunton 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.
"By far the most important investment book in years."-Bloomberg Money
"A book that belongs on every investor's bookshelf."-MSN.com
An essential and authoritative account of a century of investment returns in sixteen countries-the U.S., the U.K., Japan, France, Germany, Canada, Italy, Spain, Switzerland, Australia, the Netherlands, Sweden, Belgium, Ireland, Denmark, and South Africa
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. In Triumph of the Optimists, renowned investment authorities Elroy Dimson, Paul Marsh, and Mike Staunton 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.
More details
Other editions
Additional editions
Elroy Dimson | Paul Marsh | Mike Staunton
Triumph of the Optimists
101 Years of Global Investment Returns
Book
02/2002
Princeton University Press
€258.74
Shipment within 10-20 days
Persons
Elroy Dimson is professor of finance and cofounder and chairman of the Centre for Endowment Asset Management at the University of Cambridge Judge Business School. Paul Marsh is professor emeritus of finance at London Business School. Mike Staunton is professor emeritus of finance and director of the London Share Price Database at London Business School.
Content
Preface xi
Part One: 101 years of global investment returns 1
Chapter 1 Introduction and overview 3
1.1 Need for an international perspective 3
1.2 The historical record 5
1.3 Inside the markets 7
1.4 The equity premium 8
1.5 Sixteen countries, one world 10
Chapter 2 World markets: today and yesterday 11
2.1 The world's stock markets today 11
2.2 The world's bond markets today 14
2.3 Why stock and bond markets matter 18
2.4 The world's markets yesterday 19
2.5 The US and UK stock markets: 1900 versus 2000 23
2.6 Industry composition: 1900 versus 2000 23
2.7 Stock market concentration 28
2.8 Summary 32
Chapter 3 Measuring long-term returns 34
3.1 Good indexes and bad 34
3.2 Index design: a case study 36
3.3 Dividends, coverage, and weightings 38
3.4 Easy-data bias in international indexes 40
3.5 Measuring inflation and fixed-income returns 43
3.6 Summary 44
Chapter 4 International capital market history 45
4.1 The US record 45
4.2 The UK record 48
4.3 Stock market returns around the world 50
4.4 Equities compared with bonds and bills 51
4.5 Investment risk and the distribution of annual returns 54
4.6 Risk, diversification, and market risk 56
4.7 Risk comparisons across asset classes and countries 59
4.8 Summary 61
Chapter 5 Inflation, interest rates, and bill returns 63
5.1 Inflation in the United States and the United Kingdom 63
5.2 Inflation around the world 65
5.3 US treasury bills and real interest rates 68
5.4 Real interest rates around the world 71
5.5 Summary 72
Chapter 6 Bond returns 74
6.1 US and UK bond returns 74
6.2 Bond returns around the world 79
6.3 Bond maturity premia 81
6.4 Inflation-indexed bonds and the real term premium 84
6.5 Corporate bonds and the default risk premium 87
6.6 Summary 89
Chapter 7 Exchange rates and common-currency returns 91
7.1 Long-run exchange rate behavior 91
7.2 The international monetary system 93
7.3 Long-run purchasing power parity 95
7.4 Deviations from purchasing power parity 96
7.5 Volatility of exchange rates 98
7.6 Common-currency returns on bonds and equities 100
7.7 Summary 103
Chapter 8 International investment 105
8.1 Local market versus currency risk 105
8.2 A twentieth century world index for equities and bonds 108
8.3 Ex post benefits from holding the world index 111
8.4 Correlations between countries 114
8.5 Prospective gains from international diversification 117
8.6 Home bias and constraints on international investment 120
8.7 Summary 123
Chapter 9 Size effects and seasonality in stock returns 124
9.1 The size effect in the United States 124
9.2 The size effect in the United Kingdom 126
9.3 The size effect around the world 129
9.4 The reversal of the size premium 131
9.5 Seasonality and size 135
9.6 Summary 138
Chapter 10 Value and growth in stock returns 139
10.1 Value versus growth in the United States 139
10.2 Value and growth investing in the United Kingdom 142
10.3 The international evidence 145
10.4 Summary 148
Chapter 11 Equity dividends 149
11.1 The impact of income 149
11.2 US and UK dividend growth 152
11.3 Dividend growth around the world 154
11.4 Dividend growth, GDP growth, and real equity returns 155
11.5 Dividend yields around the world and over time 157
11.6 Disappearing dividends 158
11.7 Summary 161
Chapter 12 The equity risk premium 163
12.1 US risk premia relative to bills 163
12.2 Worldwide risk premia relative to bills 166
12.3 US risk premia relative to bonds 169
12.4 Worldwide risk premia relative to bonds 171
12.5 Summary 173
Chapter 13 The prospective risk premium 176
13.1 Why the risk premium matters 177
13.2 How big should the risk premium be? 179
13.3 Measuring the premium 181
13.4 Arithmetic and geometric premia 183
13.5 The changing consensus 185
13.6 History as a guide to the future 188
13.7 Expectations of the risk premium 190
13.8 Summary 193
Chapter 14 Implications for investors 195
14.1 Market risk in the twenty-first century 195
14.2 Inferences from other markets 199
14.3 What does the future hold? 202
14.4 Implications for individual investors 204
14.5 Implications for investment institutions 207
14.6 Summary 209
Chapter 15 Implications for companies 211
15.1 The cost of capital 211
15.2 Corporate investment decisions 215
15.3 Corporate financing decisions 217
15.4 Summary 219
Chapter 16 Conclusion 220
16.1 Long-term returns 220
16.2 Key messages 222
16.3 Conclusion 224
Part Two: Sixteen countries, one world 225
Chapter 17 Our global database 227
Chapter 18 Australia 229
Chapter 19 Belgium 234
Chapter 20 Canada 239
Chapter 21 Denmark 244
Chapter 22 France 249
Chapter 23 Germany 254
Chapter 24 Ireland 259
Chapter 25 Italy 264
Chapter 26 Japan 269
Chapter 27 The Netherlands 274
Chapter 28 South Africa 279
Chapter 29 Spain 284
Chapter 30 Sweden 289
Chapter 31 Switzerland 294
Chapter 32 United Kingdom 299
Chapter 33 United States 306
Chapter 34 World 311
References 316
About the authors 331
Index 333
Part One: 101 years of global investment returns 1
Chapter 1 Introduction and overview 3
1.1 Need for an international perspective 3
1.2 The historical record 5
1.3 Inside the markets 7
1.4 The equity premium 8
1.5 Sixteen countries, one world 10
Chapter 2 World markets: today and yesterday 11
2.1 The world's stock markets today 11
2.2 The world's bond markets today 14
2.3 Why stock and bond markets matter 18
2.4 The world's markets yesterday 19
2.5 The US and UK stock markets: 1900 versus 2000 23
2.6 Industry composition: 1900 versus 2000 23
2.7 Stock market concentration 28
2.8 Summary 32
Chapter 3 Measuring long-term returns 34
3.1 Good indexes and bad 34
3.2 Index design: a case study 36
3.3 Dividends, coverage, and weightings 38
3.4 Easy-data bias in international indexes 40
3.5 Measuring inflation and fixed-income returns 43
3.6 Summary 44
Chapter 4 International capital market history 45
4.1 The US record 45
4.2 The UK record 48
4.3 Stock market returns around the world 50
4.4 Equities compared with bonds and bills 51
4.5 Investment risk and the distribution of annual returns 54
4.6 Risk, diversification, and market risk 56
4.7 Risk comparisons across asset classes and countries 59
4.8 Summary 61
Chapter 5 Inflation, interest rates, and bill returns 63
5.1 Inflation in the United States and the United Kingdom 63
5.2 Inflation around the world 65
5.3 US treasury bills and real interest rates 68
5.4 Real interest rates around the world 71
5.5 Summary 72
Chapter 6 Bond returns 74
6.1 US and UK bond returns 74
6.2 Bond returns around the world 79
6.3 Bond maturity premia 81
6.4 Inflation-indexed bonds and the real term premium 84
6.5 Corporate bonds and the default risk premium 87
6.6 Summary 89
Chapter 7 Exchange rates and common-currency returns 91
7.1 Long-run exchange rate behavior 91
7.2 The international monetary system 93
7.3 Long-run purchasing power parity 95
7.4 Deviations from purchasing power parity 96
7.5 Volatility of exchange rates 98
7.6 Common-currency returns on bonds and equities 100
7.7 Summary 103
Chapter 8 International investment 105
8.1 Local market versus currency risk 105
8.2 A twentieth century world index for equities and bonds 108
8.3 Ex post benefits from holding the world index 111
8.4 Correlations between countries 114
8.5 Prospective gains from international diversification 117
8.6 Home bias and constraints on international investment 120
8.7 Summary 123
Chapter 9 Size effects and seasonality in stock returns 124
9.1 The size effect in the United States 124
9.2 The size effect in the United Kingdom 126
9.3 The size effect around the world 129
9.4 The reversal of the size premium 131
9.5 Seasonality and size 135
9.6 Summary 138
Chapter 10 Value and growth in stock returns 139
10.1 Value versus growth in the United States 139
10.2 Value and growth investing in the United Kingdom 142
10.3 The international evidence 145
10.4 Summary 148
Chapter 11 Equity dividends 149
11.1 The impact of income 149
11.2 US and UK dividend growth 152
11.3 Dividend growth around the world 154
11.4 Dividend growth, GDP growth, and real equity returns 155
11.5 Dividend yields around the world and over time 157
11.6 Disappearing dividends 158
11.7 Summary 161
Chapter 12 The equity risk premium 163
12.1 US risk premia relative to bills 163
12.2 Worldwide risk premia relative to bills 166
12.3 US risk premia relative to bonds 169
12.4 Worldwide risk premia relative to bonds 171
12.5 Summary 173
Chapter 13 The prospective risk premium 176
13.1 Why the risk premium matters 177
13.2 How big should the risk premium be? 179
13.3 Measuring the premium 181
13.4 Arithmetic and geometric premia 183
13.5 The changing consensus 185
13.6 History as a guide to the future 188
13.7 Expectations of the risk premium 190
13.8 Summary 193
Chapter 14 Implications for investors 195
14.1 Market risk in the twenty-first century 195
14.2 Inferences from other markets 199
14.3 What does the future hold? 202
14.4 Implications for individual investors 204
14.5 Implications for investment institutions 207
14.6 Summary 209
Chapter 15 Implications for companies 211
15.1 The cost of capital 211
15.2 Corporate investment decisions 215
15.3 Corporate financing decisions 217
15.4 Summary 219
Chapter 16 Conclusion 220
16.1 Long-term returns 220
16.2 Key messages 222
16.3 Conclusion 224
Part Two: Sixteen countries, one world 225
Chapter 17 Our global database 227
Chapter 18 Australia 229
Chapter 19 Belgium 234
Chapter 20 Canada 239
Chapter 21 Denmark 244
Chapter 22 France 249
Chapter 23 Germany 254
Chapter 24 Ireland 259
Chapter 25 Italy 264
Chapter 26 Japan 269
Chapter 27 The Netherlands 274
Chapter 28 South Africa 279
Chapter 29 Spain 284
Chapter 30 Sweden 289
Chapter 31 Switzerland 294
Chapter 32 United Kingdom 299
Chapter 33 United States 306
Chapter 34 World 311
References 316
About the authors 331
Index 333
