ECON 106F Lecture Notes - Lecture 10: United States Treasury Security, Corporate Bond, Weighted Arithmetic Mean
Document Summary
10. 1 risk and return: insights from 86 years of investor history. Standard and poor"s 500 (s&p 500) is a portfolio comparing 90 us stocks up to 1957 and 500 us stocks after that. Small stocks: a portfolio of us stocks traded on the nyse with market capitalization in the bottom 20% Corporate bonds: a portfolio of long term aaa rated us corporate bonds with maturities of 20 years. Treasury bills: one month us treasury bills. The small stocks had the highest long term returns and the most price fluctuations while t bills had the lowest long term returns but also the least price fluctuations. It clearly looks like small stocks outperformed all of the others but it can be misleading- they also endured periods of significant losses. There is also the pattern of the losses in these stocks increase during bad economic times, meaning that right when there was an increased risk of being unemployed, the value of savings eroded.
