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- Product code: 14275
- ISBN: 0691091943,
ISBN13: 9780691091945,
320 pages, hardback
Published by Princeton University Press on 2002
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Description of Triumph of the Optimists |
Investors have too often extrapolated from recent experience. In the 1950s, who but the most rampant optimist would have dreamt that over the next fifty years the real return on equities would be 9 per cent per year? Yet this is what happened in the U.S. stock market. The optimists triumphed. However, as Don Marquis observed, an optimist is someone who never had much experience. The authors of this book extend our experience across regions and across time. They present a comprehensive and consistent analysis of investment returns for equities, bonds, bills, currencies and inflation, spanning sixteen countries, from the end of the nineteenth century to the beginning of the twenty-first. This is achieved in a clear and simple way, with over 130 color diagrams that make comparison easy. Crucially, the authors analyze total returns, including reinvested income. They show that some historical indexes overstate long-term performance because they are contaminated by survivorship bias and that long-term stock returns are in most countries seriously overestimated, due to a focus on periods that with hindsight are known to have been successful.
The book also provides the first comprehensive evidence on the long-term equity risk premium - the reward for bearing the risk of common stocks. The authors reveal whether the United States and United Kingdom have had unusually high stock market returns compared to other countries. The book covers the U.S., the U.K., Japan, France, Germany, Canada, Italy, Spain, Switzerland, Australia, the Netherlands, Sweden, Belgium, Ireland, Denmark, and South Africa. Triumph of the Optimists is required reading for investment professionals, financial economists, and investors. It will be the definitive reference in the field and consulted for years to come.
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Reviews"At the very least, this [book] suggests that the recent blind adherence to the cult of the equity needs to be questioned and that the strategic weighting of bonds in institutional portfolios should be increased."
- Philip Coggan, Financial Times
"A model of how investor research should be carried out. . . . Like most great books, Triumph of the Optimists has us saying 'Wow!' and 'Unbelievable!' with startling regularity. . . . This is a book that belongs on every investor's bookshelf."
- Victor Niederhoffer and Laurel Kenner, "Money" columnists, msn.com
"Connoisseurs of financial history will find plenty to enjoy in Triumph of the Optimists. . . . The evidence produced by Mr. Dimson and his colleagues is striking, [and]. . . these issues are more than just academic. . . . A provocative lesson."
- Matthew Lynn, Financial Times
"By far the most important investment book in years. . . .It is the best and most complete source of data yet available. . . . If you spend an hour with it and don't learn anything worth the price then you're truly lousy at learning about markets. . . Right now, buying this book makes more sense than buying stocks."
- Ken Fisher, Bloomberg Money
"A brilliant new book."
- Jason Zweig, Time
Endorsements:
"This will become the definitive empirical basis for analysis of the world's capital markets over the twentieth century. It is an important work of scholarship; no one else has calculated the equity premium of a large number of countries over the long term. In doing so, the book contributes to the very lively debate on the magnitude of the equity premium and will make a splash."
- William Goetzmann, Yale University
| Contents of Triumph of the Optimists |
Preface
PART ONE: 101 years of global investment returns
1. Introduction and overview
1.1 Need for an international perspective
1.2 The historical record
1.3 Inside the markets
1.4 The equity premium
1.5 Sixteen countries, one world
2. World markets: today and yesterday
2.1 The world's stock markets today
2.2 The world's bond markets today
2.3 Why stock and bond markets matter
2.4 The world's markets yesterday
2.5 The US and UK stock markets: 1900 versus 2000
2.6 Industry composition: 1900 versus 2000
2.7 Stock market concentration
2.8 Summary
3. Measuring long-term returns
3.1 Good indexes and bad
3.2 Index design: a case study
3.3 Dividends, coverage, and weightings
3.4 Easy-data bias in international indexes
3.5 Measuring inflation and fixed-income returns
3.6 Summary
4. International capital market history
4.1 The US record
4.2 The UK record
4.3 Stock market returns around the world
4.4 Equities compared with bonds and bills
4.5 Investment risk and the distribution of annual returns
4.6 Risk, diversification, and market risk
4.7 Risk comparisons across asset classes and countries
4.8 Summary
5. Inflation, interest rates, and bill returns
5.1 Inflation in the United States and the United Kingdom
5.2 Inflation around the world
5.3 US treasury bills and real interest rates
5.4 Real interest rates around the world
5.5 Summary
6. Bond returns
6.1 US and UK bond returns
6.2 Bond returns around the world
6.3 Bond maturity premia
6.4 Inflation-indexed bonds and the real term premium
6.5 Corporate bonds and the default risk premium
6.6 Summary
7. Exchange rates and common-currency returns
7.1 Long-run exchange rate behavior
7.2 The international monetary system
7.3 Long-run purchasing power parity
7.4 Deviations from purchasing power parity
7.5 Volatility of exchange rates
7.6 Common-currency returns on bonds and equities
7.7 Summary
8. International investment
8.1 Local market versus currency risk
8.2 A twentieth century world index for equities and bonds
8.3 Ex post benefits from holding the world index
8.4 Correlations between countries
8.5 Prospective gains from international diversification
8.6 Home bias and constraints on international investment
8.7 Summary
9. Size effects and seasonality in stock returns
9.1 The size effect in the United States
9.2 The size effect in the United Kingdom
9.3 The size effect around the world
9.4 The reversal of the size premium
9.5 Seasonality and size
9.6 Summary
10. Value and growth in stock returns
10.1 Value versus growth in the United States
10.2 Value and growth investing in the United Kingdom
10.3 The international evidence
10.4 Summary
11. Equity dividends
11.1 The impact of income
11.2 US and UK dividend growth
11.3 Dividend growth around the world
11.4 Dividend growth, GDP growth, and real equity returns
11.5 Dividend yields around the world and over time
11.6 Disappearing dividends
11.7 Summary
12. The equity risk premium
12.1 US risk premia relative to bills
12.2 Worldwide risk premia relative to bills
12.3 US risk premia relative to bonds
12.4 Worldwide risk premia relative to bonds
12.5 Summary
13. The prospective risk premium
13.1 Why the risk premium matters
13.2 How big should the risk premium be?
13.3 Measuring the premium
13.4 Arithmetic and geometric premia
13.5 The changing consensus
13.6 History as a guide to the future
13.7 Expectations of the risk premium
13.8 Summary
14. Implications for investors
14.1 Market risk in the twenty-first century
14.2 Inferences from other markets
14.3 What does the future hold?
14.4 Implications for individual investors
14.5 Implications for investment institutions
14.6 Summary
15. Implications for companies
15.1 The cost of capital
15.2 Corporate investment decisions
15.3 Corporate financing decisions
15.4 Summary
16. Conclusion
16.1 Long-term returns
16.2 Key messages
16.3 Conclusion
PART TWO: Sixteen countries, one world
17. Our global database
18. Australia
19. Belgium
20. Canada
21. Denmark
22. France
23. Germany
24. Ireland
25. Italy
26. Japan
27. The Netherlands
28. South Africa
29. Spain
30. Sweden
31. Switzerland
32. United Kingdom
33. United States
34. World
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About Elroy Dimson, Paul Marsh and Mike Staunton |
All three authors are at the London Business School. Elroy Dimson is Professor of Finance. Paul Marsh is Esmee Fairbairn Professor of Finance. Mike Staunton is Director of the London Share Price Database.
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