On the Risks of Stocks in the Long Run:A Probabilistic Approach Based on Measures of Shortfall Risk

Peter Albrecht (), Raimond Maurer () and Ulla Ruckpaul ()
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Peter Albrecht: Sonderforschungsbereich 504, Postal: L 13, 15, D-68131 Mannheim
Ulla Ruckpaul: Sonderforschungsbereich 504, Postal: L 13, 15, D-68131 Mannheim

No 01-12, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

Abstract: The present paper examines the long-term risks of a representative one-time investment in German stocks (DAX/0) in real terms relative to various risk free investments (returns of 0%, 2% and 4% in real terms) as well as relative to a representative investment in German bonds (REXP). As underlying risk measures the shortfall probability, the mean excess loss (conditional shortfall expectation) as well as the product of these two measures, the shortfall expectation have been used. One main structural result is that the mean excess loss is monotonously increasing over time. This reveals a long-term worst case-characteristic of a stock investment.

Pages: 25 pages
Date: 2001-03-01
New Economics Papers: this item is included in nep-fin
Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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