This paper is one among a series of SSRN papers I wrote, all on this theme: how much do we really know about stock and bond performance during the 19th century? And if stocks and bonds behaved differently in the 19th century than in the 20th century, what does that tell us about what might happen in the 21st century?
By contrast, Professor Jeremy Siegel of Wharton, in his book Stocks for the Long Run, had earlier argued that stocks in the 19th century behaved pretty much like stocks in the 20th century, with consistent strong positive returns that considerably exceeded those on bonds over any lengthy interval.
“Stock Market Charts” takes a fresh look at stocks and bonds over the centuries. The presentation is primarily visual: I show the reader how very misleading long-term charts of stock market performance can be, and how different things look if you zoom in, change the start point, choose a different endpoint, chart a different series, etc.
The paper is in the spirit of behavioral finance, in focusing on how investor biases distort perceptions. Here the emphasis is on how easily investors can misread multi-decade charts of stock and bond performance, to see what they want to see. Using new charts, I show that there have been long periods where stocks went nowhere or declined again and again; and long periods where stocks and bonds performed about the same.
All these events were there in the data waiting to be seen. But investors could not grasp these events because of how published charts were typically drawn, and because of their own visual biases. This paper offers a corrective. – Edward F. McQuarrie
5. Pulling the Goalie: Hockey and Investment Implications by Clifford S. Asness (AQR Capital Management, LLC) and Aaron Brown (New York University (NYU) – Courant Institute of Mathematical Sciences)