Tag Archives: Risk

Long-Term Real Rates of Return

More from the recent working paper by Oscar Jorda, Katharina Knoll, Dmitry Kuvshinov, Moritz Schularick, and Alan Taylor (“The Rate of Return on Everything, 1870–2015“). (Previous blog post about the return on residential real estate.)

  • Return data for 16 advanced economies over nearly 150 years …
  • …on the income and capital gains (and thus, total returns) from equities, residential housing, government bonds, and government bills.
  • Real returns average 7% p.a. for equity, 8% for housing, 2.5% for bonds, and 1% for bills.
  • Housing returns are much less volatile than equity returns.
  • Real interest rates have been volatile over the long-run, sometimes more so than real risky returns. Real interest rates peaked around 1880, 1930, and 1990. Current low real interest rates are “normal.”
  • Risk premia have been volatile, but at lower than business cycle frequencies.
  • r − g is rather stable in the long run and always positive. The difference rose during the end of the 19th and 20th century.

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On the Performance of Swiss Portfolio Managers

In the NZZ, Michael Schaefer reports on a study about the performance of Swiss portfolio managers in 2016.

  • The median portfolio returns in all investment strategies except those not investing in stocks fell short of the corresponding benchmark returns.
  • Only a fifth of the portfolios generated returns in excess of their benchmark.
  • These numbers do not yet account for management fees.
  • No portfolio manager generated high returns across all strategies.
  • But some managers consistently generate high returns in certain strategies.

The Financial Crisis

The Economist’s “schools briefs” on the financial crisis: Parts 1, 2, 3, 4, 5. Quoting from the first part:

… it is clear the crisis had multiple causes. The most obvious is the financiers themselves—especially the irrationally exuberant Anglo-Saxon sort, who claimed to have found a way to banish risk when in fact they had simply lost track of it. Central bankers and other regulators also bear blame, for it was they who tolerated this folly. The macroeconomic backdrop was important, too. The “Great Moderation”—years of low inflation and stable growth—fostered complacency and risk-taking. A “savings glut” in Asia pushed down global interest rates. Some research also implicates European banks, which borrowed greedily in American money markets before the crisis and used the funds to buy dodgy securities. All these factors came together to foster a surge of debt in what seemed to have become a less risky world.