The expected return on equity capital is possibly the most important driving factor in asset allocation decisions. Yet, the long-term estimates we typically use are derived from U.S. data only. There are reasons to suspects, however, that these estimates of return on capital are subject to survivorship, as the United States is arguably the most successful capitalist system in the world; most other countries have been plagued by political upheaval, war, and financial crises. The purpose of this paper is to provide estimates of return on capital from long-term histories for world equity markets. By putting together a variety of sources, we collected a database of capital appreciation indexes for 39 markets with histories going back as back as the 1920s. Our results are striking. We find that the United States has the highest uninterrupted real rate of appreciation of all countries, at 4.3 percent annually from 1921 to 1996. For other countries, the median real appreciation rate was 0.8 percent. The high return premium obtained for U.S. equities therefore appears to be the exception rather than the rule.
*Published:
Published as "Global Stock Markets in the Twentieth Century", Journal of Finance, Vol. 54, no. 3 (June 1999): 953-980.
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