Dec

30

 Quick summary from Tyler Cowen: "The Rate of Return on Everything"

Here is what I learned from the paper itself:

1. Risky assets such as equities and residential real estate average about 7% gains per year in real terms. Housing outperformed equity before WWII, vice versa after WWII. In any case it is a puzzle that housing returns are less volatile but about at the same level as equity returns over a broader time span.

2. Equity and housing gains have a relatively low covariance. Buy both!

3. Equity returns across countries have become increasingly correlated, housing returns not.

4. The return on real safe assets is much more volatile than you might think.

5. The equity premium is volatile too.

6. The authors find support for Piketty's r > g, except near periods of war. Furthermore, the gap between r and g does not seem to be correlated with the growth rate of the economy.

I found this to be one of the best and most interesting papers of the year.

The NBER version says you can have it for free if you live in a "developing" country or are an establishment drone of various types, but in **big red letters** says that I can't have it, so here is the working paper version.

Federal Reserve Bank Of San Francisco Working Paper Series

The Rate of Return on Everything
, 1870–2015 "scar Jordà Federal Reserve Bank of San Francisco, University of California, Davis et al

December 2017 Working Paper 2017-25

This paper answers fundamental questions that have preoccupied modern economic thought since the 18th century. What is the aggregate real rate of return in the economy? Is it higher than the growth rate of the economy and, if so, by how much? Is there a tendency for returns to fall in the long-run? Which particular assets have the highest long-run returns? We answer these questions on the basis of a new and comprehensive dataset for all major asset classes, including—for the first time—total returns to the largest, but oft ignored, component of household wealth, housing. The annual data on total returns for equity, housing, bonds, and bills cover 16 advanced economies from 1870 to 2015, and our new evidence reveals many new insights and puzzles.


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