Expect something sensible: Putting US returns in an international perspective

Abstract

This paper examines unconditional long-run expected returns for US equity and bond markets and contrasts returns with those of four large economies. Earlier studies on the US are confirmed, and it is found that, as a result of repricing, actual equity returns have exceeded what could reasonably have been expected. As bonds returned less, the excess return on equity was spectacular. With the exception of the UK, investors in other countries were less fortunate. These results lend credibility to the argument that analysis using US historical data is overly comforting. Survivorship bias is clearly an issue. Based on current valuations, expected returns on US equities are low. Actual returns might be even lower.