Historical Returns: The Case for Equity

Jeremy J. Siegel

Rodney L. White Center for Financial Research Working Papers from Wharton School Rodney L. White Center for Financial Research

Abstract: The availability of long term data confirms the superiority of the returns of equity over fixed income instruments. This premium, particularly in the twentieth century, has been far greater than traditional finance models would have predicted on the basis of the available economic and financial data. New data from the nineteenth century suggest that the real rate of interest was far higher and the equity premium correspondingly lower. Several explanations for this premium are explored. It is concluded that the higher real rates of interest that the economy has experienced over the past decade may not be atypical of a longer- term financial perspective, although stocks still appear the asset of choice for long-term accumulation.

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