Scandinavian Working Papers in Economics
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Department of Economics, Lund University Working Papers, Department of Economics, Lund University

No 2001:16:
Empirical Probability Distributions of Real Return from Swedish Stock and Bond Portfolios

Andreas Graflund ()

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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