Do Stocks Outperform Treasury Bills? - Research Affiliates

Do Stocks Outperform Treasury Bills? Evidence and Implications

Hendrik (Hank) Bessembinder, Arizona State University

For presentation at the

Investment Research Retreat

April 8, 2019

1

Roadmap

(1) Overview of my 2018 paper titled "Do Stocks Outperform Treasury Bills?"

(2) Preview of work-in-progress regarding returns to individual stocks globally.

(3) Preview of work-in-progress regarding returns to individual active domestic mutual funds.

(4) Preview of work-in-progress regarding characteristics of stocks that turn out to be big winners or big losers.

(5) Discussion

I. My 2018 Paper Was Titled "Do Stocks Outperform Treasury Bills?"

I studied accumulated returns to all publicly-listed US common stocks from 1926 to 2016. The paper was really about positive return "skewness."

A few stocks have very large returns. This pulls up the mean market return, so that the mean is not representative of typical stocks. In fact, most U.S. stocks have negative returns. Can be seen in monthly returns, but stronger when returns are compounded over time.

But, who reads a paper with "skewness" in the title?

3

Number of Observations

Frequency Distribution of Monthly CRSP Returns, 1926 to 2016 (to nearest 1%)

250000

200000

150000

100000

50000

0

-1

0

1

2

3

4

Return

5

4

Figure 1C: Lifetime Buy-and-Hold Returns (rounded to 5%)

3500

3000

2500

Number of Observations

2000

1500

1000

500

0

-1.00

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

Return 7

Buy-and-Hold Returns (incl. reinvested dividends) to all 26,000 U.S. Common Stocks, 1926 to 2016

Horizon

Monthly Annual Decade Lifetime

Mean stock Median Greater than Greater than Greater than

return Stock Return VW Average T-Bill

zero

1.13%

0.00%

46.30%

47.80%

48.40%

14.74%

5.23%

44.40%

51.60%

55.70%

106.80% 16.00%

37.30%

49.50%

56.30%

18747%

-2.29%

30.80%

42.60%

49.50%

8

Aggregate "Wealth Creation"

I measure dollar wealth creation to investors in aggregate. The difference between the end-of-sample wealth of investors who held common stock rather than investing the same capital in Treasury bills. Allows for dividends not reinvested and net share issuance/repurchase.

9

Lifetime Wealth Creation, Top 20 Stocks

(measured as of December 2016, aggregated across share classes)

PERMCO

Company Name (most recent )

20678 7

8048 20792 20990 21398 21018 20799 20440 21880 45483 540 21446 15473 20468 20606 20103 21188 21305 2367

EXXON MOBIL CORP APPLE INC MICROSOFT CORP GENERAL ELECTRIC CO INTERNATIONAL BUSINESS MACHS COR ALTRIA GROUP INC JOHNSON & JOHNSON GENERAL MOTORS CORP CHEVRON CORP NEW WAL MART STORES INC ALPHABET INC BERKSHIRE HATHAWAY INC DEL PROCTER & GAMBLE CO AMAZON COM INC COCA COLA CO DU PONT E I DE NEMOURS & CO A T & T CORP MERCK & CO INC NEW WELLS FARGO & CO NEW INTEL CORP

Lifetime Wealth Creation

($ Millions) 1,002,144 745,675 629,804 608,115 520,240 470,183 426,210 425,318 390,427 368,214 365,285 355,864 354,971 335,100 326,085 307,976 297,240 286,671 261,343 259,252

% of Total

Cumulative % of Total

PERMNO

2.88% 2.14% 1.81% 1.75% 1.49% 1.35% 1.22% 1.22% 1.12% 1.06% 1.05% 1.02% 1.02% 0.96% 0.94% 0.88% 0.85% 0.82% 0.75% 0.74%

2.88% 5.02% 6.83% 8.57% 10.07% 11.42% 12.64% 13.86% 14.98% 16.04% 17.09% 18.11% 19.13% 20.09% 21.03% 21.91% 22.77% 23.59% 24.34% 25.09%

11850 14593 10107 12060 12490 13901 22111 12079 14541 55976 90319 17778 18163 84788 11308 11703 10401 22752 38703 59328

Annualized Return

11.94% 16.27% 25.02% 10.67% 13.78% 17.65% 15.53% 5.04% 11.03% 18.44% 24.86% 22.61% 10.45% 37.35% 13.05% 10.57% 7.81% 13.79% 13.26% 17.70%

Start Month

Jul-26 Jan-81 Apr-86 Jul-26 Jul-26 Jul-26 Oct-44 Jul-26 Jul-26 Dec-72 Sep-04 Nov-76 Sep-29 Jun-97 Jul-26 Jul-26 Jul-26 Jun-46 Jan-63 Jan-73

End

Life

Month (Months)

Dec-16 1086 Dec-16 432 Dec-16 369 Dec-16 1086 Dec-16 1086 Dec-16 1086 Dec-16 867 Jun-09 996 Dec-16 1086 Dec-16 529 Dec-16 148 Dec-16 482 Dec-16 1048 Dec-16 235 Dec-16 1086 Dec-16 1086 Nov-05 953 Dec-16 847 Dec-16 648 Dec-16 528

10

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download