Abstract
movement. Corporate yields in 1926 implied forward rates for 1969 at the five percent level and the 1969 yield curve was in the eight percent area. This biases the mean of the bond holding period returns downward as an expectation measure and it is only the expected return which is relevant to the kind of conclusion Norgaard develops. The mean of the stock holding period returns will also be effected but the impact here is not nearly so consequential in that dividends are flexible in contrast to coupon payments and face values which are fixed. Since the mean bond return is biased downward as an expectation to a considerably greater extent than is the mean equity return, there is a significant bias in the direction of rejecting the bond or mixed portfolio. Table 1 indicates the extent of the bias for a simple bond case involving unanticipated upward movement in yields. Mean one year holding period returns are developed over 43 years (the length of Norgaard's data) for investment in five percent coupon bonds of varying maturities. It is assumed that yields remain
Published Version
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