Do Stocks Really Provide the Highest Return in the Long Run?

Abstract

It is generally believed that in the long-run, stock markets outperform markets for other securities. By and large, this belief in the long-term profitability of equity investment is based on historical experience, especially in the U.S. An interesting, and potentially important, question then involves how universal this experience has been, at least among other major industrial economies. This paper examines the return over 18 years to stock, bond, and convertible bond market portfolios in Japan. It shows that contrary to what one might have expected, and based on risk-adjusted as well as risk-unadjusted measures of performance, the stock market returns have been much poorer than the returns to market portfolios of bonds and convertible bonds.