Estimating the Probability of a Lost Decade for U.S. and Global Equity

Blake Lebaron ()

Journal of Financial Perspectives, 2013, vol. 1, issue 2, 37-46

Abstract: This paper estimates the probability of a “lost decade,” where equity investments lose value over a 10-year period. The findings are a reminder that equity investments are risky even over longer time periods, and investors should take this into consideration when making portfolio choices. It also introduces a simple method to allow the reader to combine beliefs about long-run stock returns along with computer simulated return distributions. Finally, the results for the U.S. are augmented with international data which strengthen the case for large long horizon risk.

Keywords: Historical equity returns; Tail risk; Bootstrap (search for similar items in EconPapers)
JEL-codes: G12 G15 (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:ris:jofipe:0015

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