Working Papers, Department of Economics, Lund University
Empirical Probability Distributions of Real Return from Swedish Stock and Bond Portfolios
Abstract: This paper introduces a new non-parametric approach to
integrate empirical probability functions of the real return for different
investment horizons for five portfolios of Swedish stocks and bonds. In our
setting the problem reduces to generating new generalizations from an
empirical Markov chain. We find that the stocks yield a real return of
about 7.5% and bonds about 3.0%. Our results suggest that an investor ought
to avoid bonds in the long run. Finally if the investors goal is to
minimize the risk of capital destruction the preferable long-run passive
portfolio is a mix of bonds and stocks.
Keywords: Empirical distribution; stock returns; bond returns; real return; markovian bootstrap; MCMC; (follow links to similar papers)
JEL-Codes: C11; C15; G10; G11; (follow links to similar papers)
25 pages, September 20, 2001, Revised January 30, 2002
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