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Stocks, Bonds, Risk, and the Holding Period: An International Perspective


Javier Estrada

IESE Business School, Department of Finance, Av. Pearson 21, 08034 Barcelona, Spain Tel: +34 93 253 4200, Fax: +34 93 253 4343, Email: jestrada@iese.edu

Abstract The time diversification controversy, one of the most contentious issues in asset allocation, refers to the relationship between risk and the holding period. One of the aspects of this controversy is related to whether stocks become more or less risky than bonds as the holding period lengthens. To be sure, this question does not have an unequivocal answer. But the bulk of the comprehensive evidence analyzed in this article, spanning over 19 countries and 110 years, suggests that time does diversify risk. In other words, although not all results point in exactly the same direction, the overall picture that emerges is that as the holding period lengthens stocks do become less risky than bonds. This conclusion follows from an analysis based on two ways of assessing returns and several ways of assessing risk.

December, 2011

1. Introduction
Risk is a slippery concept. Finance academics and practitioners have been wrestling with its quantification ever since Markowitz (1952) defined it as the standard deviation of an assets returns. Since then, many other variables have been proposed to define it, and many more will surely be proposed in the future. Just as thorny as the issue of defining risk is that of determining how risk evolves with the holding period. Does the (absolute) risk of an asset increase or decrease with the holding period? Are stocks riskier over one year or over 30 years? There are no universallyaccepted answers to these questions. A third and related controversial issue is that of determining how the relative risk of two assets evolves with the holding period. Can one asset be riskier than another in the short term but less risky in the long term? Are stocks riskier than bonds in the short term but less risky in the long term? Again, there are no universallyaccepted answers to these questions. This article is mostly about the third issue (relative risk and the holding period), but on the way to shed some light on it, the first (the definition of risk) and second (absolute risk and the holding period) issues are also discussed. More precisely, this article ultimately focuses on determining how the relative risk of stocks and bonds evolves with the holding period, and it

I would like to thank Gabriela Giannattasio and Sergi Cutillas provided valuable research assistance. The views expressed below and any errors that may remain are entirely my own.

Electronic copy available at: http://ssrn.com/abstract=1971095

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does so by assessing the evidence from 19 countries over 110 years. The bulk of this evidence suggests that time does diversify risk; that is, as the holding period lengthens, stocks gradually become less risky than bonds. Unsurprisingly, the evidence shows that in the short term stocks are riskier than bonds; this is the case regardless of the type of returns (annualized or cumulative) on which investors focus and the way they assess risk (generally as uncertainty or more narrowly as downside potential). More interestingly, the evidence also shows that in the medium to long term stocks become less risky than bonds; this is clearly the case if investors focus on annualized returns, and largely the case if they focus on cumulative returns. The rest of the article is organized as follows. Section 2 introduces the issue at stake by defining time diversification, very briefly reviewing the relevant literature, and taking a preliminary look at the evidence. Section 3 discusses the evidence from 19 countries over 11 decades by focusing on returns, uncertainty, downside potential, holding periods, expected shortfalls, and risk premiums. Finally, section 4 provides an assessment. An appendix with tables concludes the article.

2. The Issue
Time diversification is one of the issues most hotly debated in asset allocation and portfolio management. The fact that a good part of this debate depends on how risk is defined and how investors perceive it does obviously not help the convergence of different points of view. This section first defines the scope of time diversification; then very briefly reviews some of the main contributions on this subject; and finally illustrates the different aspects of this controversy with evidence from two internationallydiversified portfolios of stocks and bonds. 2.1. Time Diversification Investors assess risk in different ways and have different views on how risk evolves with the holding period. The latter is typically referred to as the time diversification controversy, which encompasses three related but different issues. Inevitably, these three different aspects of the same concept have added much confusion to the debate of an issue that is contentious to begin with. First, supporters of time diversification argue that the (absolute) risk of an asset, particularly stocks, decreases with the holding period; critics argue the opposite. Second, supporters of time diversification argue that the longer is the holding period, the lower is the probability that a riskier (more volatile) asset underperforms a less risky (less volatile) asset; critics do not disagree but argue that this shortfall probability provides an incomplete view of

Electronic copy available at: http://ssrn.com/abstract=1971095

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risk.1 Strictly speaking, the time diversification controversy refers to these two issues, namely, how the absolute risk of an asset evolves with the holding period, and how the relative risk of two assets evolves with the holding period. However, a third issue is usually brought into the debate. A standard asset allocation recommendation suggests that younger investors should have a higher proportion of their portfolio allocated to riskier assets than older investors; that is, as investors get older and their holding period shortens, they should gradually decrease the proportion of riskier assets (such as stocks) and increase that of less risky assets (such as bonds) in their portfolio.2 Both supporters and critics of time diversification largely agree with this recommendation, but they do so for different reasons. Importantly, note that it is possible for two investors to agree on how a given measure of risk evolves with the holding period, but not necessarily on how risk itself does so. This may be simply because the two investors assess risk with different variables. To illustrate, as discussed in more detail below, one may assess risk with the volatility of annualized returns, which unequivocally decreases with the holding period, and the other with the volatility of cumulative returns, which unequivocally increases with the holding period. Note, also, that it is possible for two investors to agree on the fact that the shortfall probability decreases with the holding period, but not necessarily on how the relative risk of the two relevant assets evolves with the holding period. This may be in part for the reason just discussed (different investors may assess risk with different variables) but it may also be because one investor assesses risk only with the shortfall probability, and the other does it by considering both the shortfall probability and the magnitude of the potential shortfall. Finally, note that it is possible for two investors to agree on the plausibility of decreasing the exposure to riskier assets as their holding period shortens, but not necessarily on the plausibility of time diversification. This may be because there seems to be a broad consensus on the fact that when human capital is considered (that is, when future wealth does not depend exclusively on investment returns), then the standard asset allocation recommendation is plausible even if time does not diversify risk. Bodie, Merton, and Samuelson (1992) argue that young investors can choose to work harder if faced with poor returns (something old investors would find it more difficult to do because their human capital is largely depleted) and therefore can afford to take on more risk when they are young than when they are old.

discussions of time diversification, it typically refers to the probability that stocks underperform bonds. 2 This recommendation is consistent with the often used and abused rule of thumb that an investor splitting his portfolio between stocks and bonds should have an exposure to bonds (xB) roughly equal to his age, and an exposure to stocks (xS) roughly equal to 100 minus his age; that is, xB Age, xS 100Age, and xS+xB = 1.

1 The shortfall probability is in general defined as the probability of not meeting a chosen benchmark. In

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In short, then, time diversification refers to the relationship between risk and the

holding period. Supporters of time diversification believe 1) that the risk of an asset, particularly stocks, decreases with the holding period; 2) that the longer is the holding period, the lower is the probability that a riskier (more volatile) asset underperforms a less risky (less volatile) asset; and 3) that investors should gradually decrease their exposure to riskier assets as their holding period shortens. Critics of time diversification disagree with 1); agree with 2) but find the argument incomplete as far as the relationship between relative risk and the holding period is concerned; and agree with 3) but for reasons unrelated to the relationship between risk and the holding period. 2.2. Brief Overview of the Literature Supporters and critics of time diversification have used a wide variety of arguments to make their case. Some arguments have focused on the properties of returns and utility functions. Samuelson (1963) was the first to formally argue that an investors exposure to a risky asset should be independent from the holding period. His argument, elaborated further in Samuelson (1989, 1990, 1994), holds under very specific conditions.3 If these conditions are accepted, then Samuelsons results have the force of mathematical truth; those that disagree with Samuelson do not dispute his math but his assumptions, which he actually did himself. In fact, Samuelson (1994) admits that there are at least three settings in which longer holding periods do call for a higher exposure to riskier assets. First, when returns are mean reverting (rather than IID) and investors are more risk averse than implied by a log utility function.4 Second, when investors have a subsistence (or minimum) level of terminal wealth they wish to attain. And finally, when human capital plays a role in investing decisions (the BodieMertonSamuelson argument already discussed). Other arguments have focused on options and the cost of providing insurance against the contingency that stock returns fall short from bond returns; see, for example, Bodie (1995), Thorley (1995), Taylor and Brown (1996), Merrill and Thorley (1996), and Alles (2008). Although Bodies (1995) influential article opened this line of inquiry, his conclusion that the cost of providing insurance against a return shortfall increases with the holding period (and therefore that time magnifies the risk of investing in stocks) has largely been discredited.
3 More precisely, Samuelson argues that if an investor aims to maximize his expected utility; his utility

function is given by the log of wealth; his future wealth depends exclusively on the results of his investments; and returns are IID, then his optimal exposure to a risky asset is independent from the holding period. As long as returns are IID, this conclusion also holds for any utility function that exhibits constant relative risk aversion. 4 Fama and French (1988) and Poterba and Summers (1988) provide evidence of mean reverting returns over long horizons. Although Brown, Goetzmann, and Ross (1995) argue that this may be due to survivorship bias in the data, actually found to be negligible by Dimson, Marsh, and Staunton (2011), it is generally accepted that over the long term markets do tend to mean revert.

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Arguments in favor of and against time diversification have also been based on the joint

consideration of the mean and variance of returns through meanvariance optimal allocations, Sharpe ratios, or time diversification indices; see, for example, Levy and Gunthorpe (1993), Hodges, Taylor, and Yoder (1997), Hansson and Persson (2000), and Fabozzi, Focardi, and Kolm (2006). Alternative ways of assessing risk, such as firstorder stochastic dominance (Butler and Domian, 1991) and value at risk (Anderson, Malone, and Marshall, 2009), have also played a role in the time diversification debate. Finally, several behavioral arguments have been offered to explain why investors and advisors often believe that time diversifies risk; see, for example, Olsen and Khaki (1998) and Fisher and Statman (1999). Kritzman and Rich (1998) provide a good overview of many of the theoretical arguments in favor of and against time diversification, and also clarify the specific conditions under which it holds.5 2.3. Absolute Risk and the Holding Period One of the issues surrounding the time diversification controversy is the type of returns on which investors focus. To be sure, this not a matter of right or wrong; some investors find it plausible to focus on annualized returns and some others on cumulative returns. However, these two types of returns may lead to conflicting views about the relationship between risk and the holding period. Exhibit 1 displays in panel A some summary statistics on the real returns of the Dimson MarshStaunton index for the world stock market over the 19002009 period; the returns are annual, in dollars, adjusted by US inflation, and account for capital gains/losses and dividends. Consider the figures in panel B, which follow from the series of annualized returns, for five holding periods between 1 year and 30 years.6 To clarify, these figures follow from calculating first the annualized return for all possible, say, 30year periods, and then summary statistics out of such series of 30year annualized returns; the same is the case for all the other holding periods considered in the panel.
5 They establish that the optimal exposure to a risky asset is independent from the holding period if an

investor has a log utility function, regardless of the characteristics of returns; or an investor exhibits constant relative risk aversion and returns are IID. They also establish that the optimal exposure to a risky asset decreases as the holding period shortens if an investor exhibits constant relative risk aversion, is more risk averse than implied by a log utility function, and returns are mean reverting. 6 The terms annualized return, mean annual compound return, and geometric mean annual return are all different names for the same concept and therefore used interchangeably throughout the article.

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Exhibit 1: The World Market
This exhibit shows information for the DimsonMarshStaunton (DMS) index of the world stock market over the 19002009 period. Panel A shows, for the series of annual returns, the sample size (T), arithmetic (AM) and geometric (GM) mean return, standard deviation (SD), and semideviation for a 0% benchmark (SSD). Panel B shows, for the series of annualized returns, the standard deviation, lowest and highest returns, and spread between them (Spread=HighestLowest). Panel C shows, for the series of cumulative returns, the arithmetic mean, standard deviation, ratio of the latter to the former, lowest and highest returns, and spread between them. Panel D shows the shortfall probability (SP), annualized shortfall magnitude (ASM), cumulative shortfall magnitude (CSM), annualized expected shortfall (AES), and cumulative expected shortfall (CES), all as defined in the text, with respect to the DMS index of the world bond market. Returns are real (adjusted by US inflation), in dollars, and account for both capital gains/losses and cash flows (dividends and coupons). All figures but T and SD/AM in %.

Panel A Panel B SD Lowest Highest Spread Panel C AM SD SD/AM Lowest Highest Spread Panel D SP ASM CSM AES CES

T 110 1 Year 17.7 40.4 70.1 110.5 1 Year 6.9 17.7 2.5 40.4 70.1 110.5 1 Year 33.6 12.8 12.8 4.3 4.3

AM 6.9 5 Years 8.1 13.3 22.5 35.8 5 Years 40.9 54.8 1.3 51.1 175.7 226.8 5 Years 26.4 5.3 29.5 1.4 7.8

GM 5.4 10 Years 5.3 6.5 18.2 24.6 10 Years 94.7 101.5 1.1 48.8 430.9 479.7 10 Years 23.8 2.0 29.6 0.5 7.0

SD 17.7 20 Years 3.1 0.6 13.5 14.2 20 Years 263.0 222.9 0.8 12.0 1163.4 1175.4 20 Years 7.7 1.4 81.4 0.1 6.3

SSD 9.4 30 Years 1.7 2.1 9.6 7.5 30 Years 521.9 278.8 0.5 87.3 1473.4 1386.1 30 Years 2.5 0.4 50.8 0.0 1.3

Note that both the standard deviation of annualized returns and the spread between the

highest and lowest annualized returns decrease as the holding period lengthens. The intuition is clear: The return over any short holding period can be extraordinarily high or low, but as the holding period lengthens, extreme sustained returns become more and more unlikely. An investor can gain over 70% or lose over 40% in any given year (as panel B shows that it did happen), but it would be far more unlikely (and panel B shows that it actually never happened) for an investor to lose that much per year over five, ten, or more years. Some investors conclude out of this kind of evidence that risk decreases with the holding period; or, in other words, that time diversifies risk. Consider now the figures in panel C, which follow from the series of cumulative (or total) returns, for five holding periods between 1 year and 30 years. To clarify, these figures follow from calculating first the cumulative return (defined as that between the beginning and the end of each holding period) for all possible, say, 30year periods, and then summary statistics out of such series of 30year cumulative returns; the same is the case for all the other holding periods considered in the panel.

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Note that both the standard deviation of cumulative returns and the spread between the

highest and lowest cumulative returns increase as the holding period lengthens. The intuition is again clear: Given the compounding of capital and the typical upward trend of stock markets, cumulative returns tend to increase with the length of the holding period (daily returns tend to be smaller than monthly returns, which tend to be smaller than annual returns, which tend to be smaller than fiveyear returns, ), and so do mean returns, the dispersion around those mean returns, and the spread between the highest and lowest returns, as panel C clearly shows. Some investors conclude out of this kind of evidence that risk increases with the holding period; or, in other words, that time magnifies risk. Investors that assess risk on the basis of annualized returns focus on the fact that although in short holding periods the stock market is highly unpredictable, the longer is the holding period, the more likely it becomes that annualized returns will revert to their longterm mean. As mentioned before, the return in any given year may be extraordinarily high or low, but as the holding period lengthens, the return per year (that is, the annualized return over each holding period) becomes less and less extraordinary and converges to the longterm geometric mean return. This convergence as the holding period lengthens is viewed by some investors as a decrease in risk. Investors that assess risk on the basis of cumulative returns, on the other hand, focus on the level of wealth accumulated at the end of a holding period. To illustrate, consider a $100 investment in the world stock market. Notice that the spread in annualized returns shrinks considerably when comparing, say, 1year to 30year holding periods (from 110.5% to 7.5%, as panel B shows). But also notice that the spread in the terminal value of the investment is just $110.5 (=$170.1$59.6) over 1 year, grows to $479.7 ($530.9$51.2) over 10 years, and to $1,386.1 (=$1,573.4$187.3) over 30 years, as panel C implies. This increase in the dispersion of terminal wealth as the holding period lengthens is viewed by some investors as an increase in risk. Again, there is no right or wrong approach; it is only a matter of perspective. In the same way that some investors assess risk with volatility, others with downside volatility, and others with factors, some investors assess the relationship between risk and the holding period with annualized returns and others with cumulative returns. Obviously, the focus on either type of returns does not change the absolute risk of an asset, the relative risk of two assets, or how absolute and relative risk evolve with the holding period; it only has an impact on an investors perception of risk. As plausibly argued by McEnally (1985), risk is ultimately in the eyes of the beholder. That being said, two things are worth highlighting. First, note that comparing cumulative returns over holding periods of different length may be akin to comparing apples and oranges.

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In order to make an applestoapples comparison, the returns of holding periods of different length need to be standardized, and that is precisely what annualizing returns does. A focus on cumulative returns makes it arguable whether a 20% return over thirty years is better or worse than an 18% return over five years. But it is unambiguous that the return per year has been much higher in the second case (3.4%) than in the first case (0.6%). Arguing that comparing cumulative returns over different holding periods makes little sense, Fabozzi, Focardi, and Kolm (2006) propose to standardize risk by dividing the chosen measure of risk over a given holding period by the expected return over that holding period. They also argue that time diversifies risk if such ratio between risk and return decreases with the holding period. The third row of panel C of Exhibit 1 shows the ratio between volatility and mean return (the second row divided by the first), both based on cumulative returns. As these figures clearly show, risk per unit of return (or returnadjusted risk), clearly decreases with the holding period, thus suggesting that time diversifies risk. Second, panel C shows that the lowest cumulative return decreases when going from a 1year (40.4%) to a 5year (51.1%) holding period, but then it steadily increases from that point on. This implies that although the spread between the highest and lowest cumulative returns steadily increases with the holding period, and so does the uncertainty about terminal wealth, the worstcase scenario does not get worse; it actually gets better. In other words, most of the increase in the spread is due to an increase in upside potential. Unlike the gamble considered by Samuelson (1963), in which potential losses mount as the number of times the gamble is played increases, lengthening the holding period in the stock market typically decreases the downside potential by shrinking, and eventually reversing the sign of, the potential losses. 2.4. Relative Risk and the Holding Period The issues discussed in the previous section concern the relationship between the risk of an individual asset (absolute risk) and the holding period. This section focuses on the relationship between the relative risk of two assets and the holding period, which is the main issue discussed in this article. Supporters of time diversification often highlight that the shortfall probability decreases as the holding period lengthens (see Siegel, 2008); that is, the longer is the holding period, the lower is the probability that a riskier (more volatile) asset, such as stocks, underperforms a less risky (less volatile) asset, such as bonds. Panel D of Exhibit 1 shows in its first line the shortfall probability (SP), calculated as the proportion of holding periods in which the world stock market underperformed the world bond market, over five holding periods between one 1 year and 30 years. As these figures show, although stocks underperformed bonds in over one third of

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all 1year periods, they did so in less than one fourth of all 10year periods, and in just 2.5% of all 30year periods. In other words, the evidence does show that the shortfall probability clearly decreases as the holding period lengthens. Critics of time diversification are undeterred by this fact. They argue that the probability of underperformance is important but so is the magnitude of the underperformance. Put differently, they argue that focusing on the shortfall probability and ignoring the shortfall magnitude results in a misleading assessment of relative risk. So, how does the shortfall magnitude evolve with the holding period? Here again the use of annualized or cumulative returns leads to conflicting results. The second line of panel D shows the annualized shortfall magnitude (ASM), defined as the average difference between the annualized return of the bond market and that of the stock market over the holding periods in which the latter underperformed the former. The third line of the same panel shows the cumulative shortfall magnitude (CSM), defined as the average difference between the cumulative return of the bond market and that of the stock market over the holding periods in which the latter underperformed the former. As these two lines show, the ASM clearly decreases, and the CSM largely increases (peaking at 20 years), with the holding period, thus yielding conflicting results. That being said, the shortfall probability and the shortfall magnitude could and should be considered jointly. The fourth line of panel D shows the annualized expected shortfall (AES), defined as the product between the shortfall probability and the annualized shortfall magnitude; that is, AES = SPASM. The fifth line shows the cumulative expected shortfall (CES), defined as the product between the shortfall probability and the cumulative shortfall magnitude; that is, CES = SPCSM. Note that the AES and the CES quantify expected losses, not expected returns. More precisely, they account for the probability that stocks underperform bonds and the magnitude of the shortfall, but not for probability that stocks outperform bonds and the magnitude of the outperformance. By way of analogy, flipping a coin with payoffs of +30% and 10% would have an expected loss of 5% (=0.100.5) but an expected return of 10% (=0.100.5+0.30.5). In short, the AES and the CES isolate the downside but do not account for the upside. As panel D shows, the AES steadily decreases with the holding period; the CES, in turn, peaks at 5 years and then also steadily decreases with the holding period. This suggests that regardless of whether investors focus on annualized or cumulative returns, jointly considering the shortfall probability and the shortfall magnitude leads to the conclusion that for investment horizons longer than five years stocks become less risky than bonds, at least in the sense that their expected shortfall decreases with the holding period.

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3. Evidence
The results discussed so far, based on two internationallydiversified portfolios of stocks and bonds, have highlighted the issues at stake, introduced some relevant definitions, and set the stage for a more thorough analysis at the country level. The relationship between relative risk and the holding period can only be evaluated in a meaningful way with a comprehensive sample, and the DimsonMarshStaunton (DMS) dataset, which covers 19 countries over 110 years, is ideal for this purpose. Exhibit 2 summarizes some characteristics of the series of annual real returns of stocks and bonds over the 19002009 period for all the countries in the sample. Returns are in local currency, adjusted by local inflation, and account for capital gains/losses and cash flows (dividends or coupons).7 Exhibit 2: Summary Statistics

This exhibit shows, for the series of annual returns, the arithmetic (AM) and geometric (GM) mean return, standard deviation (SD), and semideviation for a 0% benchmark (SSD) for all the stock (S) and bond (B) markets in the DimsonMarshStaunton (DMS) dataset over the 19002009 period. Returns are real (adjusted by local inflation), in local currency, and account for both capital gains/losses and cash flows (dividends or coupons). All figures in %.

Country Australia Belgium Canada Denmark Finland France Germany Ireland Italy Japan Netherlands New Zealand Norway S. Africa Spain Sweden Switzerland UK USA Average

AM S B 9.1 2.3 5.2 0.6 7.2 2.5 6.7 3.6 9.1 1.0 5.7 0.7 8.1 0.7 6.5 2.1 6.2 0.4 8.6 1.5 7.1 1.8 7.6 2.4 7.2 2.4 9.5 2.2 6.0 2.0 8.6 3.2 6.1 2.5 7.2 2.2 8.2 2.4 7.4 1.9

GM S B 7.5 1.4 2.5 0.1 5.8 2.0 4.9 3.0 5.1 0.3 3.1 0.2 3.0 2.0 3.8 1.1 2.1 1.6 3.8 1.2 4.9 1.4 5.9 2.0 4.1 1.7 7.2 1.7 3.8 1.4 6.2 2.5 4.3 2.1 5.3 1.3 6.2 1.9 4.7 0.9

SD S B 18.2 13.2 23.6 12.0 17.2 10.4 20.7 11.6 30.3 13.7 23.5 13.0 32.2 15.5 23.1 14.6 29.0 14.1 29.8 20.1 21.8 9.4 19.7 9.0 27.4 12.2 22.5 10.4 22.1 11.7 22.8 12.4 19.8 9.3 20.0 13.6 20.3 10.1 23.4 12.4

SSD S B 9.3 7.7 12.6 8.3 8.5 5.5 8.9 5.1 14.1 11.1 12.6 9.7 15.1 12.6 12.2 7.9 15.8 11.9 15.5 15.0 10.4 5.2 9.2 4.9 11.9 7.0 9.2 5.9 11.1 7.0 10.9 6.1 10.3 4.3 9.9 7.2 10.6 5.3 11.5 7.8

3.1. Returns The DMS dataset provides a very broad perspective on the performance of stock and bonds markets over the last 11 decades. The columns labeled GM in Exhibit 2 show, perhaps unsurprisingly, that the annualized real return of stocks has been both positive and higher than that of bonds in every country in the sample. In other words, in the long term, not only did stocks never fail to beat inflation but also provided better protection against it than bonds. On
7 Jorion (2003) also considers a large sample of countries, both developed and emerging, but his sample period is shorter than that in this article.

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average across the 19 countries in the sample, stocks provided investors with an annualized real return of 4.7%, 3.8 percentage points higher than that of bonds (0.9%). Somewhat more surprising may be the fact that in six of the 19 countries in the sample (Belgium, Finland, France, German, Italy, and Japan) bonds delivered a negative annualized real return; hence, in these countries, in the long term, bonds did not keep up with inflation. Thus, although in every country for which longterm data exist stocks beat inflation and increased purchasing power, in almost one third of those countries bonds failed to beat inflation and actually decreased purchasing power. And yet most investors view stocks as riskier than bonds. Why? 3.2. Uncertainty As already mentioned, risk is a slippery concept that can be measured in many different ways, and volatility is perhaps the variable most widely used to assess it. The columns labeled SD in Exhibit 2 and the columns labeled 1 Year in panel A of Exhibit 3 show, perhaps unsurprisingly, that the volatility of stocks has been higher than that of bonds in every country. On average across the 19 countries in the sample, the standard deviation of annual returns was 23.4% in the case of stocks, almost twice as high as that of bonds (12.4%). The picture does not change substantially if risk is measured with the spread between the highest and lowest annual returns over the whole 19002009 period instead. The columns labeled 1 Year in panel B of Exhibit 3 show that the spread of stocks is higher than that of bonds in every country. On average across the 19 countries in the sample, the annual spread of stocks was 154.0%, substantially higher than that of bonds (87.7%).8 In short, as long as investors view risk as shortterm uncertainty, there is little question that stocks are riskier than bonds. Both volatility and spreads unequivocally indicate that in the short term stock returns are more unpredictable than bond returns. But, clearly, not all investors assess risk this way.
8 To clarify the calculation of spreads consider the US market. The 94.5% spread of stocks results from the

difference between the highest (56.5%, in 1933) and lowest (38.0%, in 1931) annual return over the whole 19002009 period. Similarly, the 54.5% spread of bonds results from the difference between the highest (35.1%, in 1982) and lowest (19.4%, in 1918) annual return over the 19002009 period.

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Exhibit 3: Uncertainty Annualized Returns
This exhibit shows the volatility (panel A) and spread (panel B, as defined in Exhibit 1) of stocks (S) and bonds (B) over five different holding periods, based on annualized returns. The data is described in Exhibit 2. All figures in %.

Panel A Australia Belgium Canada Denmark Finland France Germany Ireland Italy Japan Netherlands New Zealand Norway S. Africa Spain Sweden Switzerland UK USA Average Panel B Australia Belgium Canada Denmark Finland France Germany Ireland Italy Japan Netherlands New Zealand Norway S. Africa Spain Sweden Switzerland UK USA Average

1 Year S B 18.2 13.2 23.6 12.0 17.2 10.4 20.7 11.6 30.3 13.7 23.5 13.0 32.2 15.5 23.1 14.6 29.0 14.1 29.8 20.1 21.8 9.4 19.7 9.0 27.4 12.2 22.5 10.4 22.1 11.7 22.8 12.4 19.8 9.3 20.0 13.6 20.3 10.1 23.4 12.4 1 Year S B 94.0 88.8 166.6 71.2 89.0 67.6 157.0 68.3 222.5 99.7 108.7 79.4 245.4 157.5 133.8 95.3 193.5 92.9 206.6 147.3 152.0 50.9 160.0 57.8 220.5 110.2 155.1 69.6 142.7 83.5 133.3 104.8 97.2 77.5 153.7 89.6 94.5 54.5 154.0 87.7

5 Years S B 7.5 7.2 10.4 7.4 7.3 6.0 6.9 5.8 14.0 10.0 11.3 9.6 14.3 12.9 9.4 7.4 12.2 11.2 16.2 13.8 9.8 5.3 7.6 5.8 9.0 6.9 8.8 5.5 11.7 5.8 9.9 6.6 9.1 5.0 8.0 7.0 8.2 5.1 10.1 7.6 5 Years S B 43.1 37.7 53.0 32.9 36.5 29.7 37.8 32.1 81.6 51.8 55.7 47.5 91.5 62.2 42.9 35.9 54.6 59.5 98.9 80.0 42.2 27.8 52.6 28.9 57.6 41.3 49.2 26.2 63.0 24.3 52.2 35.9 45.0 33.8 40.5 34.1 38.6 28.2 54.6 39.5

10 Years S B 4.6 6.0 7.0 6.4 4.1 4.9 4.0 4.9 8.8 8.1 7.4 8.4 9.9 10.8 6.6 6.0 8.4 9.6 11.6 12.3 6.5 4.4 4.0 4.8 5.6 5.7 5.3 4.5 7.4 4.4 6.3 5.1 5.8 3.5 5.3 5.5 5.2 4.1 6.5 6.3 10 Years S B 22.8 22.5 27.4 26.1 19.2 19.9 19.2 21.7 42.5 31.4 34.4 33.5 57.0 35.7 26.8 24.5 35.1 39.2 62.0 53.8 24.4 19.0 24.8 19.3 26.1 29.7 23.5 18.2 35.3 18.0 32.2 22.5 29.3 21.1 23.2 24.5 20.8 16.6 30.8 26.2

20 Years S B 2.9 4.4 4.6 4.7 2.6 3.6 2.6 3.7 5.2 5.1 4.5 6.4 5.9 7.5 4.1 4.3 4.2 6.5 6.9 9.7 4.3 3.5 2.0 3.5 3.8 3.7 3.1 3.1 4.6 3.1 4.4 3.7 3.7 2.0 3.1 3.9 3.2 3.1 4.0 4.5 20 Years S B 12.3 14.7 21.2 17.5 10.6 14.4 11.9 13.0 23.4 17.4 19.3 21.9 32.2 21.4 18.5 15.9 16.7 23.1 30.8 30.1 20.0 11.2 8.4 12.9 15.5 15.2 14.5 12.0 20.6 12.9 22.5 15.0 14.6 11.8 15.2 14.7 11.8 11.7 17.9 16.1

30 Years S B 2.3 2.8 3.1 3.4 1.7 2.1 1.8 2.7 3.2 2.8 2.9 5.3 4.3 4.8 2.6 2.7 2.2 4.6 5.0 7.5 2.8 2.6 1.6 2.1 2.5 2.2 1.7 2.0 2.3 2.1 3.2 2.6 2.1 1.1 1.8 2.6 1.7 2.0 2.6 3.1 30 Years S B 8.0 10.3 13.4 11.7 6.7 8.3 7.7 9.1 14.1 10.6 12.5 15.6 20.6 14.3 11.6 11.1 10.8 15.2 22.9 20.5 10.9 8.8 7.1 8.5 13.3 9.3 7.0 6.9 12.0 9.2 13.0 8.7 8.1 5.3 8.4 10.6 7.7 8.1 11.4 10.6

3.3. Downside Potential Arguably, investors do not dislike volatility or uncertainty; rather, they dislike downside volatility and negative surprises, particularly when these are large. The columns labeled SSD in Exhibit 2 and the columns labeled 1 Year in panel A of Exhibit 4 show that the downside volatility of stocks has been higher than that of bonds in every country. On average across the 19 countries in the sample, the annual semideviation with respect to a 0% benchmark was

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11.5% for stocks and 7.8% for bonds.9 Importantly, this measure of risk does not simply measure departures from the mean return; it measures downside departures from any chosen benchmark. Put differently, the semideviations in Exhibits 2 and 4 measure volatility below 0%, or the volatility of negative (real) returns. Exhibit 4: Downside Potential Annualized Returns

This exhibit shows the semideviation for a 0% benchmark (panel A) and the lowest return over the 19002009 period (panel B) of stocks (S) and bonds (B) over five different holding periods, based on annualized returns. The data is described in Exhibit 2. All figures in %.

Panel A Australia Belgium Canada Denmark Finland France Germany Ireland Italy Japan Netherlands New Zealand Norway S. Africa Spain Sweden Switzerland UK USA Average Panel B Australia Belgium Canada Denmark Finland France Germany Ireland Italy Japan Netherlands New Zealand Norway S. Africa Spain Sweden Switzerland UK USA Average

1 Year S B 9.3 7.7 12.6 8.3 8.5 5.5 8.9 5.1 14.1 11.1 12.6 9.7 15.1 12.6 12.2 7.9 15.8 11.9 15.5 15.0 10.4 5.2 9.2 4.9 11.9 7.0 9.2 5.9 11.1 7.0 10.9 6.1 10.3 4.3 9.9 7.2 10.6 5.3 11.5 7.8 1 Year S B 42.5 26.6 57.1 30.6 33.8 25.9 49.2 18.2 60.8 69.5 42.7 43.5 90.8 95.0 65.4 34.1 72.9 64.3 85.5 77.5 50.4 18.1 54.7 23.7 53.6 48.0 52.2 32.6 43.3 30.2 43.6 36.7 37.8 21.4 57.1 30.7 38.0 19.4 54.3 39.3

5 Years S B 2.8 4.0 6.0 5.6 2.2 3.2 2.0 2.5 6.9 8.6 6.0 7.9 7.9 12.0 3.8 4.3 7.5 10.1 10.5 12.2 3.5 2.7 2.8 2.8 4.8 4.2 1.5 2.6 5.9 3.5 3.8 3.1 4.3 2.7 3.2 4.2 2.8 2.5 4.6 5.2 5 Years S B 19.4 14.8 23.6 19.8 10.1 14.2 11.8 12.6 31.8 36.6 25.8 32.5 41.8 45.5 14.2 16.3 28.5 45.3 52.3 58.5 12.1 11.3 19.2 10.9 23.4 23.2 8.4 10.7 26.8 11.6 20.2 13.9 20.7 15.0 18.0 14.6 11.4 10.4 22.1 22.0

10 Years S B 0.9 3.2 3.3 5.0 0.4 2.1 0.3 1.5 3.8 6.8 3.3 6.9 4.7 10.0 2.1 3.2 4.6 8.8 7.3 11.1 1.5 2.1 0.6 2.2 2.4 2.9 0.6 2.0 3.9 2.4 2.1 1.7 2.2 1.5 1.1 3.0 0.9 1.5 2.4 4.1 10 Years S B 5.6 8.4 11.3 16.0 2.5 8.8 2.0 7.9 14.6 20.8 15.2 22.2 19.3 25.1 9.4 11.4 13.8 28.2 30.9 39.6 5.5 7.2 3.7 7.1 10.4 13.2 5.1 6.5 16.8 7.6 9.2 6.9 11.1 8.4 5.6 11.2 4.0 5.4 10.3 13.8

20 Years 30 Years S B S B 0.0 1.8 0.0 1.4 1.5 3.5 0.5 2.3 0.0 1.0 0.0 0.4 0.0 0.5 0.0 0.2 0.8 4.1 0.0 2.3 1.3 5.0 0.3 4.0 2.7 7.1 1.5 4.6 0.6 1.9 0.0 1.3 1.7 6.4 0.5 5.3 3.4 9.1 1.8 7.4 0.4 1.5 0.0 1.3 0.0 1.2 0.0 0.8 0.5 1.4 0.2 0.8 0.0 1.3 0.0 0.9 1.3 1.6 0.2 1.3 0.5 1.0 0.0 0.8 0.7 0.5 0.0 0.0 0.2 1.6 0.0 1.1 0.0 0.8 0.0 0.6 0.8 2.7 0.3 1.9 20 Years 30 Years S B S B 1.6 4.0 2.9 4.0 7.5 9.5 3.1 5.4 0.9 4.7 3.0 1.4 0.5 2.3 2.3 0.7 3.5 9.9 0.1 5.6 5.7 12.0 1.6 7.5 10.2 14.2 6.4 9.2 4.2 5.9 1.0 4.1 6.0 15.3 2.2 10.0 12.7 22.6 8.6 14.7 2.7 3.7 0.2 3.4 1.8 4.0 2.1 2.5 2.3 5.4 1.2 2.4 0.1 3.9 4.0 2.1 5.3 4.9 0.8 3.5 3.5 3.4 0.1 2.3 3.8 3.1 0.3 0.4 1.7 5.8 2.4 4.1 0.9 3.1 2.8 2.0 3.3 7.3 0.2 4.4


9 The semideviation with respect to a benchmark B ( ) is given by = {(1/T) Min(R B)2}1/2, where R B B t t denotes returns, T the number of observations, and t indexes time. Throughout this article the benchmark used is 0%. For an introduction to the semideviation, see Estrada (2006).

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Besides being concerned about downside volatility, which is properly captured by the

semideviation, investors often are also concerned about worstcase scenarios. The columns labeled 1 Year in panel B of Exhibit 4 show the lowest annual return over the whole 19002009 period for all the stock and bond markets in the sample. With only three exceptions (Finland, France, and Germany), the worst annual return for stocks was lower than that for bonds. Across all the markets in the sample, the worst annual return for stocks and bonds averaged 54.3% and 39.3%, a difference of 15 percentage points. Thus, with minor exceptions, in the worst of times stocks punished investors with higher losses than did bonds. In short, if investors view risk not as uncertainty in general but more narrowly as downside potential, it still remains the case that in the short term stocks are riskier than bonds. Both the semideviation and worstcase scenarios indicate that stocks are more likely to deliver unpleasant surprises to investors than bonds. Thus, as long as investors focus on the short term, and regardless of whether they view risk as uncertainty (measured by volatility or spreads) or downside potential (measured by the semideviation or worstcase scenarios), the evidence clearly suggests that stocks are riskier than bonds. 3.4. The Holding Period That being said, it is obvious that not all investors focus on the short term; those saving for their childrens college tuition, their dream house, or retirement, among many others, have much longer investment horizons. It is necessary to explore, then, how the length of the holding period affects the relative risk of stocks and bonds. Panel A in Exhibit 3 shows that for a 10year holding period, the annualized volatility of stocks (6.5%) was, on average, almost the same as that of bonds (6.3%). For 20/30year holding periods, the annualized volatility of stocks was, in most countries and on average, actually lower than that of bonds. Panel B shows that for 20/30year holding periods, the annualized spread of stocks was, on average, just slightly higher than that of bonds. Thus, the figures in Exhibit 3 essentially show that, although stocks are unquestionably riskier than bonds in the short term, as the holding period lengthens, the uncertainty about the expected return from stocks declines much more rapidly than the uncertainty about the expected return from bonds. A focus away from uncertainty in general and more narrowly on downside potential actually strengthens the idea that as the holding period lengthens, stocks gradually become less risky than bonds. Panel A in Exhibit 4 shows that for a 5year holding period, the annualized semideviation of stocks (4.6%) was, on average, lower than that of bonds (5.2%). Furthermore, for 10/20/30year holding periods, the semideviation of stocks was lower than that of bonds not only on average but also in most countries. In other words, as the holding period lengthens, bonds expose investors to higher downside potential than do stocks.

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Importantly, panel B in Exhibit 4 shows that for holding periods as short as five years,

the lowest annualized return of stocks over the whole 19002009 period (22.1%) was on average virtually identical to that of bonds (22.0%); in roughly half the countries, in fact, the lowest 5year annualized return of stocks was higher than that of bonds. The rest of the columns in this panel show that for 10/20/30year holding periods, in most countries and on average, the lowest annualized return of stocks over the whole 19002009 period was higher than that of bonds. In fact, although for a 20year holding period the lowest annualized return of bonds was negative in all countries, that of stocks was positive in six countries; for a 30year holding period, although the lowest annualized return of bonds was negative in all countries but Switzerland, that of stocks was positive in 11 countries. Thus, the evidence shows that in the short term stocks have higher volatility, higher spreads, higher downside potential, and deliver more painful losses than do bonds. However, for holding periods longer than ten years, the opposite is largely the case; that is, stocks gradually become less risky than bonds. These conclusions follow from Exhibits 3 and 4, both of which are based on annualized returns. However, as already discussed, a focus on cumulative returns may or may not lead to the same conclusions. Exhibits A1 and A2 in the appendix, both based on cumulative returns, explore this issue. Exhibit A1 shows in panel A volatility and in panel B spreads for stocks and bonds over different holding periods. Clearly, as the holding period lengthens, stocks become increasingly more volatile than bonds and the spread of stocks gradually increases relative to that of bonds. Perhaps unsurprisingly, these findings based on cumulative returns seem to contradict those based on annualized returns by suggesting that, as the holding period lengthens, stocks become riskier than bonds. However, Exhibit A2, also in the appendix and also based on cumulative returns, puts the message from Exhibit A1 into perspective. Panel A in Exhibit A2 shows that for holding periods as short as five years, the semideviation of stocks is lower than that of bonds, both on average and in over half of the countries in the sample. Furthermore, for holding periods ten years or longer, the semideviation of stocks is lower than that of bonds not only on average but also in almost every country. The important implication of this evidence is that although stocks become gradually more volatile than bonds as the holding periods lengthens, most of the increase in volatility is on the upside. In fact, panel B, which shows the lowest cumulative return over the 19002009 period for different holding periods strengthens this conclusion. For a holding period of five years, the lowest return delivered by stocks was on average just slightly lower than that delivered by bonds. For holding periods ten years or longer, the lowest return delivered by stocks was actually higher than that delivered by bonds, both on average and in almost every country. For a 30year holding period, the lowest return delivered by bonds was negative in every country but

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Switzerland, but that delivered by stocks was positive both on average and in more than half of the countries in the sample. These results suggest that if investors focus on cumulative returns, volatility and spreads taken in isolation may lead them to believe that as the holding period lengthens, stocks become riskier than bonds. However, a more thorough assessment that distinguishes between uncertainty and downside potential should lead them to reconsider. The evidence suggests that most of the increase in the uncertainty of stocks relative to bonds is actually an increase in upside potential; that is, it is uncertainty about how much more stocks will deliver than bonds. And that can hardly be called risk. 3.5. The Expected Shortfall As already discussed, when assessing the relationship between relative risk and the holding period, both the shortfall probability and the shortfall magnitude combined into the expected shortfall can and should play a role in the evaluation. To that purpose, Exhibit 5 shows the shortfall probability (SP), the annualized shortfall magnitude (ASM), and the annualized expected shortfall (AES) for all the markets in the sample, all as defined in section 2.4. Panel A shows that with only minor exceptions, the SP steadily decreases with the holding period. On average across all countries, stock markets underperformed bond markets in 40% of all 1year periods, in less than 25% of all 10year periods, and in less than 10% of all 30 year periods. In six markets, in fact, stocks never underperformed bonds over 30 years. These figures clearly suggest that although in the short term stocks are far from guaranteed to outperform bonds, in the long term they are very likely to do so. Panel B shows that both on average and in every country the ASM steadily decreases with the holding period. Panel C, which combines the figures from panels A and B, shows that both on average and in every country the AES also steadily decreases with the holding period. In other words, as the investment horizon lengthens, stocks gradually become less risky than bonds in the sense that the annualized expected shortfall steadily decreases with the investment horizon. A focus on cumulative returns, summarized in Exhibit A3 in the appendix, tells a somewhat (but not totally) different story. Panel A shows the same shortfall probabilities shown in panel A of Exhibit 5. Panel B shows that the cumulative shortfall magnitude (CSM) increases with the holding period in most countries, although in many countries it peaks at 20 years. Panel C, which combines the figures from panels A and B, shows that on average across all countries, as well as in seven countries, the cumulative expected shortfall (CES) peaks at the 20 year holding period. In six countries the CES peaks at an investment horizon of 10 years, in four countries at 5 years, and in two countries at 30 years. Thus, in 13 of the 19 countries in the

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sample the CES peaks at holding periods between 10 and 20 years, after which stocks become less risky than bonds as measured by their cumulative expected shortfall. In short, focusing on cumulative (rather than on annualized) returns does not really reverse the conclusion that, as the holding period lengthens, stocks become less risky than bonds; it merely increases the length of the holding period after which this happens. Exhibit 5: Expected Shortfalls Annualized Returns
This exhibit shows shortfall probabilities (panel A), annualized shortfall magnitudes (panel B), and annualized expected shortfalls (panel C), all as defined in the text, over 1year (1Y), 5year (5Y), 10year (10Y), 20year (20Y), and 30year (30Y) holding periods. The data is described in Exhibit 2. All figures in %.

Panel A Australia Belgium Canada Denmark Finland France Germany Ireland Italy Japan Panel B Australia Belgium Canada Denmark Finland France Germany Ireland Italy Japan Panel C Australia Belgium Canada Denmark Finland France Germany Ireland Italy Japan

1Y 33.6 41.8 40.0 42.7 41.8 44.5 40.0 37.3 40.0 41.8 1Y 13.8 13.8 13.0 12.3 15.1 13.5 15.6 13.4 16.4 16.8 1Y 4.6 5.8 5.2 5.3 6.3 6.0 6.3 5.0 6.5 7.0

5Y 19.8 33.0 29.2 41.5 28.3 31.1 28.3 28.3 36.8 32.1 5Y 4.7 6.6 5.3 3.6 6.5 6.6 7.6 4.2 7.4 8.2 5Y 0.9 2.2 1.5 1.5 1.8 2.0 2.1 1.2 2.7 2.6

10Y 12.9 24.8 22.8 27.7 8.9 31.7 28.7 13.9 35.6 27.7 10Y 1.9 4.0 2.7 2.3 2.5 3.6 4.7 3.7 3.6 5.7 10Y 0.2 1.0 0.6 0.6 0.2 1.1 1.3 0.5 1.3 1.6

20Y 2.2 12.1 17.6 20.9 1.1 22.0 19.8 12.1 23.1 22.0 20Y 1.1 1.7 1.4 1.4 0.9 1.9 1.9 1.0 2.1 3.5 20Y 0.0 0.2 0.2 0.3 0.0 0.4 0.4 0.1 0.5 0.8

30Y 0.0 1.2 4.9 14.8 0.0 18.5 1.2 4.9 13.6 13.6 30Y N/A 0.6 0.7 0.8 N/A 0.8 0.1 0.5 1.2 1.9 30Y 0.0 0.0 0.0 0.1 0.0 0.1 0.0 0.0 0.2 0.3

Netherlands New Zealand Norway S. Africa Spain Sweden Switzerland UK USA Average Netherlands New Zealand Norway S. Africa Spain Sweden Switzerland UK USA Average Netherlands New Zealand Norway S. Africa Spain Sweden Switzerland UK USA Average

1Y 40.0 34.5 47.3 38.2 47.3 39.1 37.3 33.6 38.2 40.0 1Y 14.2 11.8 13.8 12.6 12.8 16.1 13.6 11.3 15.8 14.0 1Y 5.7 4.1 6.5 4.8 6.1 6.3 5.1 3.8 6.0 5.6

5Y 27.4 18.9 34.9 23.6 39.6 23.6 31.1 18.9 26.4 29.1 5Y 8.4 7.3 5.8 3.8 5.5 9.6 6.1 5.5 6.3 6.3 5Y 2.3 1.4 2.0 0.9 2.2 2.3 1.9 1.0 1.7 1.8

10Y 20Y 30Y 25.7 12.1 21.0 12.9 11.0 0.0 25.7 17.6 8.6 12.9 3.3 0.0 30.7 19.8 6.2 23.8 27.5 24.7 27.7 27.5 22.2 18.8 13.2 0.0 16.8 3.3 0.0 22.6 15.2 8.2 10Y 20Y 30Y 4.9 4.3 1.2 5.3 2.7 N/A 3.2 1.8 1.0 2.6 0.1 N/A 3.7 1.6 0.5 5.7 3.4 2.5 3.3 1.6 1.1 2.2 0.7 N/A 3.1 1.3 N/A 3.6 1.8 1.0 10Y 20Y 30Y 1.3 0.5 0.2 0.7 0.3 0.0 0.8 0.3 0.1 0.3 0.0 0.0 1.1 0.3 0.0 1.3 0.9 0.6 0.9 0.5 0.2 0.4 0.1 0.0 0.5 0.0 0.0 0.8 0.3 0.1

3.6. The Risk Premium The expected shortfall combines the shortfall probability and the shortfall magnitude, thus focusing only on the expected loss of stocks relative to bonds. The risk premium, in turn, accounts for both the expected loss and the expected gain, the latter defined as the product between the probability that stocks outperform bonds and the average magnitude of the outperformance. Put differently, the expected shortfall is given by SPSM and the risk premium by SPSM+(1SP)OM, where SM and OM denote the shortfall magnitude and the

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outperformance magnitude (and SP, as before, the shortfall probability).10 Exhibit 6 shows risk premiums calculated this way for five holding periods between 1 and 30 years, based on annualized returns; Exhibit A4 in the appendix shows risk premiums based on cumulative returns. Exhibit 6: Risk Premiums Annualized Returns
Country Australia Belgium Canada Denmark Finland France Germany Ireland Italy Japan 1Y 5Y 10Y 20Y 30Y 6.9 6.1 5.9 5.9 6.0 4.5 3.4 3.2 3.2 2.9 4.7 3.9 3.9 4.0 4.3 3.1 2.2 2.0 1.8 2.0 8.1 6.2 6.0 5.8 5.8 5.0 3.7 3.6 3.7 3.7 7.4 5.2 5.1 5.4 5.5 4.3 3.4 3.6 3.7 3.9 6.5 4.2 4.2 4.6 5.1 7.0 5.6 5.1 5.5 6.4

This exhibit shows risk premiums, as defined in the text, over 1year (1Y), 5year (5Y), 10year (10Y), 20year (20Y), and 30year (30Y) holding periods, based on annualized returns. The data is described in Exhibit 2. All figures in %.

Country Netherlands New Zealand Norway S. Africa Spain Sweden Switzerland UK USA Average

1Y 5Y 10Y 20Y 30Y 5.3 4.1 4.1 4.1 4.1 5.3 4.3 4.0 4.0 4.4 4.8 2.8 2.4 2.1 2.2 7.2 5.7 5.7 6.2 6.6 4.0 2.9 2.6 2.6 2.4 5.4 4.1 3.7 3.6 4.0 3.6 2.7 2.5 2.4 2.5 5.0 4.2 4.2 4.6 4.7 5.8 4.5 4.5 4.8 5.0 5.5 4.2 4.0 4.1 4.3

Results vary by country, in some cases substantially (compare, for example, Australia or

Finland to Spain or Switzerland), but on average across all countries stocks can be expected to outperform bonds by 5.5% over 1year holding periods, by 4% a year over 10 years, and by 4.3% a year over 30 years. Needless to say, these are unconditional expectations; obviously, valuation measures should condition and play a critical role in an any forecast. In other words, the expected relative performance of stocks and bonds over any given holding period is critically dependent on whether each asset is overvalued, undervalued, or properly valued at the moment the forecast is made. 3.7. A Word On Absolute Risk Before concluding, consider once more the issue of absolute risk; that is, the relationship between the risk of an individual asset and the holding period. Because the asset considered in this section is stocks, focus on the columns labeled S of all the exhibits mentioned. Exhibits 3 and 4 show that in every country the volatility, spread between the highest and lowest returns, and semideviation with respect to 0% all steadily decrease with the holding period. At the same time, the lowest return steadily increases with the holding period, eventually turning positive in many countries at investment horizons of 20 or 30 years. These results suggest that although stocks may subject investors to large uncertainty and downside potential in the short term, both gradually decrease with the holding period. In other words, the

10 Both SM and OM can be expressed in terms of annualized or cumulative returns. SP, in turn, is obviously independent from the way returns are expressed.

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longer the investment horizon the more likely are stocks to deliver their longterm mean annual compound return. Furthermore, the left half of Exhibit A5 (labeled Annualized Returns) in the appendix shows the ratio between volatility and arithmetic mean return for the five holding periods considered. As these figures clearly show, risk per unit of return (or returnadjusted risk) steadily decreases with the holding period in every country in the sample. The message from Exhibits 3 and 4 and the left half of Exhibit A5, then, is clear: Time does diversify the risk of investing in international stock markets. This conclusion follows from a focus on annualized returns; would it be altered by a focus on cumulative returns instead? Exhibit A1 in the appendix shows that, with few exceptions, volatility and spreads increase with the holding period, which suggests that time magnifies the uncertainty of investing in stocks, thus contradicting the previous conclusion. However, panel A of Exhibit A2 in the appendix shows that, on average across countries, downside potential as measured by the semideviation peaks at a 5year holding period and decreases from that point on. In fact, with only three exceptions, in every country the semideviation over 20/30year holding periods is lower than or equal to the semideviation over a 5year holding period. At the same time, panel B of Exhibit A2 shows that, with few exceptions, the lowest return (the lower end of the spreads) peaks at the 5year holding period and then increases from that point on. Finally, the right half of Exhibit A5 (labeled Cumulative Returns) in the appendix shows that in most cases risk per unit of return clearly decreases with the holding period. A focus on cumulative returns, then, suggests that although uncertainty as measured by volatility and spreads clearly increases with the holding period, this increase is largely driven by an increase in the probability and magnitude of beneficial outcomes. In other words, the increase in uncertainty is not driven by an increase in potentiallydetrimental outcomes but by a combination of a decreasing downside potential and an increasing upside potential. These results provide a broad international perspective on the relationship between the risk of investing in stocks and the holding period. They will probably not settle a controversy that has been raging on for decades, but the big picture is not hard to see. Compounding and the longterm upward trend of stock markets have a natural and straightforward implication for investors: The longer is the holding period, the higher is the uncertainty about how large the accumulated wealth will be at the end of that period. But it is essential to notice that most of this increasing uncertainty is upside risk. Worstcase scenarios typically improve (not worsen), and bestcase scenarios typically improve dramatically, with the length of the holding period. In short, then, swings in accumulated wealth that tend to increase with the length of the investment horizon are a natural consequence of compounding and upward trending markets.

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But, ultimately, the longer is the holding period the more likely are investors to be exposed to positive (rather than negative) surprises, and the more the uncertainty is about how high the upside (rather than how low the downside) will be.

4. Assessment
If diversification is the prime method for improving the tradeoff between risk and return, then diversification over time is just as important as diversification across asset groups at any given moment. Bernstein (1976). The definition of risk and the evolution of absolute and relative risk with the holding period are issues that finance academics and practitioners have been hotly debating for several decades. This article aims to contribute to this debate and hopefully help to clarify some of the contentious issues by analyzing the evidence from a comprehensive dataset that spans over 19 countries and 110 years. Although both the definition of risk and the evolution of absolute risk with the holding period are discussed, the ultimate issue addressed in this article is the evolution of the relative risk of stocks and bonds with the holding period. As far as this last issue is concerned, the evidence shows, unsurprisingly, that in the short term stocks are riskier than bonds; this is the case regardless of the type of returns (annualized or cumulative) on which investors focus and the way they assess risk (generally as uncertainty or more narrowly as downside potential). The evidence also shows that in the medium to long term stocks become less risky than bonds; this is clearly the case if investors focus on annualized returns, and largely the case if they focus on cumulative returns. When investors focus on annualized returns, all the risk measures considered (volatility, spreads, semideviation, worstcase scenarios, and expected shortfall) unambiguously suggest that as the holding period lengthens, stocks steadily become less risky than bonds. When investors focus on cumulative returns instead, volatility and spreads taken in isolation may lead investors to believe that as the holding period lengthens, stocks become riskier than bonds. However, a more thorough assessment that distinguishes between uncertainty and downside potential should lead them to reconsider. The evidence suggests that most of the increase in the uncertainty of stocks relative to bonds is actually an increase in upside potential; that is, it is uncertainty about how much more stocks will deliver than bonds. Although for all the wrong reasons some investors think of the stock market as a casino, there is an important similarity between them. The owner of a casino is not guaranteed to make a profit in any given period. He runs an operation with favorable odds but no certainties; in some periods he will do well and in some others badly, and a run of very bad luck may even bankrupt his business. But an unlikely catastrophe notwithstanding, the patient casino owner is very likely to come out ahead; after all, he runs a business with a positive expected value and

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time is on his side. The situation is very similar in the stock market; there are no certainties, and nothing prevents an investor from being hit by a run of bad luck with dramatic consequences. But much like the casino owner, investors in the stock market are playing with a loaded coin; the odds are in their favor and therefore time is on their side. The analogy can be extended to the relationship between the stock and bond markets. A casino owner runs several games, all of them with favorable, but not the same odds. In short periods, a game with less favorable odds may generate more profit than one with more favorable odds. But in the long term, it is almost certain that the more profitable games will be those with better odds for the casino owner. The situation is similar in financial markets. In the short term, the stock market may underperform the bond market; in fact, it may vastly underperform and the short term may be much longer than many investors would like. But the longer is an investors holding period, the more likely he is to find that stocks outperform bonds, and that they do so by an increasing magnitude. Time is on the side of the patient investor that can bear the higher short term volatility and downside potential of stocks; time, in fact, loads the coin that will compensate these investors with a higher future payoff. As argued by Reichenstein and Dorsett (1995), just as the risk of an asset cannot be assessed independently from the portfolio to which it belongs, nor it cannot be assessed independently from the holding period. An asset may be very risky in isolation and much less risky within a portfolio. Similarly, an asset may be very risky in the short term and much less risky in the long term; or it may be riskier than another in the short term and less risky in the long term. All in all, the comprehensive evidence discussed in this article suggests that time does diversify risk; that is, as the holding period lengthens stocks gradually become less risky, both in absolute terms and relative to bonds. To be sure, not all investors will agree with this assessment. But those who think that time magnifies the risk of investing in stocks should notice that cumulative returns over different holding periods are not really comparable; that increasing uncertainty is undesirable unless it mostly captures increasing upside potential; and that the downside potential of stocks clearly decreases with the holding period. All that being said, both beauty and risk are and will always be in the eyes of the beholder.

22

Appendix

Exhibit A1: Uncertainty Cumulative Returns


This exhibit shows the volatility (panel A) and spread (panel B, as defined in Exhibit 1) of stocks (S) and bonds (B) over five different holding periods, based on cumulative returns. The data is described in Exhibit 2. All figures in %.

Panel A
Australia Belgium Canada Denmark Finland France Germany Ireland Italy Japan Netherlands New Zealand Norway S. Africa Spain Sweden Switzerland UK USA Average

1 Year S B
18.2 23.6 17.2 20.7 30.3 23.5 32.2 23.1 29.0 29.8 21.8 19.7 27.4 22.5 22.1 22.8 19.8 20.0 20.3 23.4 13.2 12.0 10.4 11.6 13.7 13.0 15.5 14.6 14.1 20.1 9.4 9.0 12.2 10.4 11.7 12.4 9.3 13.6 10.1 12.4

5 Years S B
42.3 35.7 33.5 34.3 39.5 40.0 42.2 42.0 40.6 46.4 29.8 33.7 37.0 31.4 30.7 39.6 27.8 38.7 28.6 36.5

10 Years S B
80.7 63.2 65.1 74.4 71.3 75.1 72.2 79.7 71.3 81.5 55.5 66.5 80.1 60.0 54.0 77.2 47.1 70.0 54.0 68.4

20 Years S B
253.2 161.3 275.7 124.5 172.4 146.0 183.7 187.7 621.2 115.3 277.1 179.8 634.9 121.7 313.8 163.7 186.8 123.1 544.1 125.5 446.3 106.4 119.4 132.5 224.6 139.6 287.9 102.8 330.3 101.6 491.2 164.1 193.4 78.2 245.6 138.1 250.2 113.5 318.5 132.9

30 Years S B
143.6 167.2 150.1 296.3 108.4 305.4 148.9 167.5 106.2 165.8 124.2 113.4 137.8 87.7 91.4 167.3 73.2 159.3 112.8 148.8

48.0 62.1 48.8 47.1 115.5 74.4 113.5 65.6 70.3 104.7 69.8 54.0 57.8 74.6 82.7 69.6 57.8 49.6 55.3 69.5

85.9 103.6 75.8 71.5 195.9 121.3 372.2 115.8 137.3 246.7 129.3 79.9 79.1 114.5 110.6 124.3 96.9 96.6 97.7 129.2

595.9 386.7 322.5 326.1 922.7 410.2 678.8 558.5 187.3 1071.7 562.6 273.1 443.7 467.6 347.9 834.0 245.5 338.2 386.5 492.6

Panel B

1 Year S B
88.8 71.2 67.6 68.3 99.7 79.4 157.5 95.3 92.9 147.3 50.9 57.8 110.2 69.6 83.5 104.8 77.5 89.6 54.5 87.7

5 Years S B

10 Years S B

20 Years S B

30 Years S B
2005.9 585.8 1886.9 599.5 1334.3 679.8 1564.4 1058.7 4955.0 415.2 2182.0 1046.1 5328.2 439.8 3427.4 730.2 1116.6 461.4 5527.6 539.6 2266.5 450.7 1222.1 528.9 3051.3 682.2 1944.8 355.8 2303.8 489.6 3903.6 591.0 992.5 409.3 1991.4 631.6 1793.4 543.0 2568.3 591.5

Australia 94.0 Belgium 166.6 Canada 89.0 Denmark 157.0 Finland 222.5 France 108.7 Germany 245.4 Ireland 133.8 Italy 193.5 Japan 206.6 Netherlands 152.0 New Zealand 160.0 Norway 220.5 S. Africa 155.1 Spain 142.7 Sweden 133.3 Switzerland 97.2 UK 153.7 USA 94.5 Average 154.0

255.6 235.7 337.6 152.3 264.7 159.5 264.2 192.3 740.8 192.9 347.5 187.0 745.7 211.3 306.4 203.4 300.6 189.3 674.0 263.2 319.8 159.6 387.8 172.4 408.9 203.0 489.5 149.1 447.8 127.5 368.6 223.6 265.4 192.6 238.8 198.7 277.9 168.6 391.7 188.5

430.8 333.0 415.3 245.7 391.5 245.5 404.4 319.0 1153.0 263.2 556.5 283.4 2436.3 266.6 458.1 314.4 668.5 280.8 1501.1 375.9 510.8 256.4 609.8 270.5 398.6 435.3 482.7 250.5 528.1 224.2 755.7 380.3 499.4 290.2 448.8 318.3 407.3 231.8 687.2 293.9

1214.6 711.4 1277.4 445.2 763.1 589.6 932.2 701.2 3768.5 412.0 1244.4 662.7 5362.3 401.9 1392.1 642.4 733.5 444.3 2805.9 421.8 2388.0 373.0 552.8 512.8 1116.8 617.5 1420.7 427.3 1680.3 431.7 3169.1 843.1 741.4 480.3 1194.2 522.1 962.9 467.8 1722.1 532.0

23
Exhibit A2: Downside Potential Cumulative Returns
This exhibit shows the semideviation for a 0% benchmark (panel A) and the lowest return over the 19002009 period (panel B) of stocks (S) and bonds (B) over five different holding periods, based on cumulative returns. The data is described in Exhibit 2. All figures in %.

Panel A Australia Belgium Canada Denmark Finland France Germany Ireland Italy Japan Netherlands New Zealand Norway S. Africa Spain Sweden Switzerland UK USA Average Panel B Australia Belgium Canada Denmark Finland France Germany Ireland Italy Japan Netherlands New Zealand Norway S. Africa Spain Sweden Switzerland UK USA Average

1 Year S B 9.3 7.7 12.6 8.3 8.5 5.5 8.9 5.1 14.1 11.1 12.6 9.7 15.1 12.6 12.2 7.9 15.8 11.9 15.5 15.0 10.4 5.2 9.2 4.9 11.9 7.0 9.2 5.9 11.1 7.0 10.9 6.1 10.3 4.3 9.9 7.2 10.6 5.3 11.5 7.8 1 Year S B 42.5 26.6 57.1 30.6 33.8 25.9 49.2 18.2 60.8 69.5 42.7 43.5 90.8 95.0 65.4 34.1 72.9 64.3 85.5 77.5 50.4 18.1 54.7 23.7 53.6 48.0 52.2 32.6 43.3 30.2 43.6 36.7 37.8 21.4 57.1 30.7 38.0 19.4 54.3 39.3

5 Years S B 11.0 16.5 21.9 21.5 9.6 13.1 8.8 10.7 23.4 26.1 21.8 25.5 25.3 30.5 15.6 17.3 25.5 27.9 25.5 27.2 14.6 12.0 10.7 12.0 16.9 15.3 6.6 11.5 20.1 15.0 14.6 13.1 16.0 10.9 13.0 16.7 11.8 10.8 16.5 17.6 5 Years S B 65.9 55.0 73.9 66.8 41.2 53.5 46.5 49.0 85.2 89.8 77.6 86.0 93.3 95.2 53.6 58.9 81.3 95.1 97.5 98.8 47.6 45.1 65.5 44.0 73.7 73.4 35.5 43.2 79.0 46.2 67.7 52.6 68.7 55.5 62.9 54.5 45.4 42.4 66.4 63.4

10 Years S B 7.7 24.2 23.9 31.4 3.6 16.7 3.2 12.1 24.7 36.3 22.2 36.2 27.9 42.8 15.9 24.1 30.4 39.4 30.5 35.4 12.4 17.3 5.2 17.1 17.3 20.5 5.2 17.0 23.7 18.9 15.1 14.4 15.8 11.4 9.0 22.4 8.1 12.8 15.9 23.7 10 Years S B 44.0 58.5 69.7 82.4 22.2 60.4 18.5 56.1 79.3 90.3 80.9 91.9 88.3 94.5 62.8 70.0 77.3 96.4 97.5 99.4 43.0 52.7 31.2 51.9 66.5 75.7 40.6 49.2 84.1 54.5 61.9 50.9 69.2 58.4 43.8 69.5 33.3 42.3 58.6 68.7

20 Years S B 0.0 27.6 20.0 38.9 0.0 15.4 0.0 8.8 12.6 45.3 17.9 48.3 31.2 57.2 8.9 28.3 23.1 51.6 33.4 46.9 6.6 24.0 0.0 17.8 8.3 21.4 0.0 19.9 18.6 22.8 8.3 16.3 11.0 7.5 3.0 24.2 0.0 13.9 10.7 28.2 20 Years S B 38.0 56.2 79.0 86.6 20.1 62.1 11.3 36.8 50.6 87.7 69.3 92.2 88.4 95.3 57.8 70.4 70.8 96.4 93.3 99.4 41.7 53.4 42.7 55.6 37.7 66.7 1.9 55.2 66.3 63.1 51.0 50.4 53.7 46.7 28.5 69.9 19.1 46.3 34.5 67.9

30 Years S B 0.0 27.9 12.8 42.6 0.0 10.3 0.0 5.1 0.5 43.6 7.7 58.0 27.4 62.9 0.0 27.4 11.1 60.3 24.8 60.1 0.0 26.5 0.0 18.0 4.0 17.8 0.0 21.2 4.3 27.0 0.0 18.7 0.0 0.0 0.0 23.1 0.0 15.4 4.9 29.8 30 Years S B 133.7 71.0 60.6 81.2 140.1 34.7 100.7 18.5 4.4 82.3 37.6 90.2 86.3 94.5 35.9 71.2 49.4 95.7 93.3 99.1 6.3 64.4 85.0 53.3 30.2 51.8 220.6 47.3 22.5 66.1 2.0 50.6 8.3 11.3 106.6 71.2 129.4 45.4 30.8 62.0

24
Exhibit A3: Expected Shortfalls Cumulative Returns
This exhibit shows shortfall probabilities (panel A), cumulative shortfall magnitudes (panel B), and cumulative expected shortfalls (panel C), all as defined in the text, over 1year (1Y), 5year (5Y), 10year (10Y), 20year (20Y), and 30year (30Y) holding periods. The data is described in Exhibit 2. All figures in %.

Panel A Australia Belgium Canada Denmark Finland France Germany Ireland Italy Japan Panel B Australia Belgium Canada Denmark Finland France Germany Ireland Italy Japan Panel C Australia Belgium Canada Denmark Finland France Germany Ireland Italy Japan

1Y 33.6 41.8 40.0 42.7 41.8 44.5 40.0 37.3 40.0 41.8 1Y 13.8 13.8 13.0 12.3 15.1 13.5 15.6 13.4 16.4 16.8 1Y 4.6 5.8 5.2 5.3 6.3 6.0 6.3 5.0 6.5 7.0

5Y 19.8 33.0 29.2 41.5 28.3 31.1 28.3 28.3 36.8 32.1 5Y 29.9 31.3 30.2 20.6 31.7 34.5 38.6 24.5 36.8 44.4 5Y 5.9 10.3 8.8 8.6 9.0 10.7 10.9 6.9 13.5 14.2

10Y 20Y 30Y 12.9 2.2 0.0 24.8 12.1 1.2 22.8 17.6 4.9 27.7 20.9 14.8 8.9 1.1 0.0 31.7 22.0 18.5 28.7 19.8 1.2 13.9 12.1 4.9 35.6 23.1 13.6 27.7 22.0 13.6 10Y 20Y 30Y 41.2 79.3 N/A 44.5 34.4 14.2 48.3 99.0 115.8 41.6 101.2 114.7 28.9 54.4 N/A 41.9 53.7 82.5 64.0 76.6 14.4 50.8 51.5 68.1 39.3 65.1 41.8 75.2 135.3 166.6 10Y 20Y 30Y 5.3 1.7 0.0 11.0 4.2 0.2 11.0 17.4 5.7 11.5 21.1 17.0 2.6 0.6 0.0 13.3 11.8 15.3 18.4 15.2 0.2 7.0 6.2 3.4 14.0 15.0 5.7 20.9 29.7 22.6

Netherlands New Zealand Norway S. Africa Spain Sweden Switzerland UK USA Average Netherlands New Zealand Norway S. Africa Spain Sweden Switzerland UK USA Average Netherlands New Zealand Norway S. Africa Spain Sweden Switzerland UK USA Average

1Y 40.0 34.5 47.3 38.2 47.3 39.1 37.3 33.6 38.2 40.0 1Y 14.2 11.8 13.8 12.6 12.8 16.1 13.6 11.3 15.8 14.0 1Y 5.7 4.1 6.5 4.8 6.1 6.3 5.1 3.8 6.0 5.6

5Y 27.4 18.9 34.9 23.6 39.6 23.6 31.1 18.9 26.4 29.1 5Y 43.4 41.4 30.7 22.7 24.1 54.0 30.5 31.8 32.4 33.3 5Y 11.9 7.8 10.7 5.3 9.5 12.7 9.5 6.0 8.6 9.5

10Y 20Y 30Y 25.7 12.1 21.0 12.9 11.0 0.0 25.7 17.6 8.6 12.9 3.3 0.0 30.7 19.8 6.2 23.8 27.5 24.7 27.7 27.5 22.2 18.8 13.2 0.0 16.8 3.3 0.0 22.6 15.2 8.2 10Y 20Y 30Y 65.7 146.7 68.6 95.2 177.9 N/A 52.6 69.7 112.9 45.3 7.0 N/A 28.0 33.9 19.5 79.6 145.3 185.5 35.7 56.0 59.5 37.7 41.2 N/A 41.8 56.3 N/A 50.4 78.1 81.9 10Y 20Y 30Y 16.9 17.7 14.4 12.2 19.5 0.0 13.5 12.3 9.8 5.8 0.2 0.0 8.6 6.7 1.2 18.9 39.9 45.8 9.9 15.4 13.2 7.1 5.4 0.0 7.0 1.9 0.0 11.3 12.7 8.1

Exhibit A4: Risk Premiums Cumulative Returns


Country 1Y Australia 6.9 Belgium 4.5 Canada 4.7 Denmark 3.1 Finland 8.1 France 5.0 Germany 7.4 Ireland 4.3 Italy 6.5 Japan 7.0 5Y 10Y 20Y 30Y 38.1 86.4 281.9 775.5 25.1 47.8 123.1 186.3 25.5 54.8 168.5 453.4 14.7 24.7 59.6 153.5 51.7 109.0 317.0 603.8 26.4 48.2 99.1 117.5 40.0 106.2 217.4 394.1 24.3 58.1 172.6 381.2 27.8 56.0 94.8 141.8 45.1 102.1 251.8 567.2

This exhibit shows risk premiums, as defined in the text, over 1year (1Y), 5year (5Y), 10year (10Y), 20year (20Y), and 30year (30Y) holding periods, based on cumulative returns. The data is described in Exhibit 2. All figures in %.

Country Netherlands New Zealand Norway S. Africa Spain Sweden Switzerland UK USA Average

1Y 5Y 10Y 5.3 32.6 77.2 5.3 28.7 56.9 4.8 20.1 31.4 7.2 41.8 96.3 4.0 29.1 54.7 5.4 31.8 67.8 3.6 22.5 48.9 5.0 26.6 63.2 5.8 31.9 76.5 5.5 30.7 66.6

20Y 246.1 149.5 88.4 330.1 147.2 237.5 134.6 204.1 249.3 188.0

30Y 462.1 420.6 202.7 834.1 162.9 599.3 248.0 456.1 557.6 406.2

25
Exhibit A5: ReturnAdjusted Risk Stocks
This exhibit shows risk per unit of return, defined as the ratio of volatility to arithmetic mean return, over 1year (1Y), 5year (5Y), 10year (10Y), 20year (20Y), and 30year (30Y) holding periods, based on both annualized and cumulative returns. The data is described in Exhibit 2.

Panel A Australia Belgium Canada Denmark Finland France Germany Ireland Italy Japan Netherlands New Zealand Norway S. Africa Spain Sweden Switzerland UK USA Average 1Y 1.99 4.58 2.39 3.08 3.32 4.13 3.98 3.57 4.71 3.48 3.07 2.58 3.82 2.38 3.67 2.65 3.24 2.78 2.47 3.26

Annualized Returns 5Y 10Y 20Y 0.94 0.61 0.39 2.90 2.25 1.62 1.18 0.68 0.43 1.28 0.78 0.53 2.21 1.53 1.04 2.91 2.14 1.46 3.43 2.80 1.79 1.95 1.34 0.82 4.02 3.34 2.04 2.91 2.59 1.75 1.73 1.19 0.80 1.19 0.66 0.34 1.93 1.37 1.05 1.16 0.73 0.43 2.73 1.98 1.42 1.46 1.01 0.75 1.89 1.29 0.83 1.37 0.92 0.51 1.26 0.81 0.49 2.02 1.47 0.97

30Y 0.31 1.20 0.27 0.37 0.61 1.02 1.20 0.54 1.05 1.25 0.53 0.27 0.70 0.23 0.83 0.54 0.47 0.29 0.27 0.63

1Y 1.99 4.58 2.39 3.08 3.32 4.13 3.98 3.57 4.71 3.48 3.07 2.58 3.82 2.38 3.67 2.65 3.24 2.78 2.47 3.26

Cumulative Returns 5Y 10Y 20Y 0.91 0.70 0.68 1.99 1.61 1.71 1.19 0.83 0.66 1.33 0.95 0.95 1.89 1.49 1.78 2.09 1.63 1.64 2.39 2.92 2.46 1.75 1.27 1.24 2.19 1.96 1.71 1.77 1.78 1.69 1.60 1.26 1.45 1.24 0.86 0.52 1.67 1.18 1.37 1.37 0.92 0.76 2.09 1.45 1.77 1.37 1.12 1.44 1.60 1.25 0.99 1.24 1.01 0.87 1.22 0.91 0.78 1.63 1.32 1.29

30Y 0.69 1.61 0.57 0.87 1.49 1.68 1.58 1.20 1.45 1.65 1.04 0.54 1.53 0.53 1.77 1.14 0.72 0.61 0.60 1.12

26

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