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More About This Title 2016 Stocks, Bonds, Bills, and Inflation (SBBI) Yearbook
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The 2016 Stocks, Bonds, Bills, and Inflation (SBBI) Yearbook is the industry standard performance data reference, with comprehensive records dating back to 1926. Covering common stocks, long-term government bonds, long-term corporate bonds, Treasury bills, and the Consumer Price Index, this book provides the essential information advisors, planners, and brokers need to analyze asset class performance. Historical return figures include the riskless rate of interest, equity risk premium, bond default premium, and the maturity premium between the return on long-term governments and Treasury bills, and total returns and index values cover large and small company stocks, long- and intermediate-term government bonds, inflation, and more. Charts and graphs allow for quick visual reference, and a clear hierarchical organization pattern facilitates efficient data location.
As the go-to reference for information and capital market returns, this book provides investors with the critical background they need to analyze future investments. With the most complete historical data available, investors will be able to: Find annual index levels and total rates of return for five basic asset seriesAccess historical return figures for four component seriesEstimate cost-of-capital based on comprehensive, reliable dataMake informed judgments about future investment opportunities
Performance analysis is critical to successful investing, but the analysis can only be as useful as the data is accurate. Decisions made from scant information are not good investment decisions; investors need complete, top-quality data to make informed choices and properly balance risk with reward. The 2016 Stocks, Bonds, Bills, and Inflation (SBBI) Yearbook is the definitive study of historical capital market data in the United States, and the gold-standard reference industry-wide.
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Roger Ibbotson is a Professor in Practice at Yale School of Management. He is also Chairman and CIO of Zebra Capital Management LLC, a global asset and hedge fund manager that focuses on capturing liquidity premiums in equity markets. He is founder, adviser and former chairman of Ibbotson Associates, now a Morningstar company. He has written numerous books and articles. Ibbotson serves on numerous boards including Dimensional Fund Advisors’ funds. He frequently speaks at universities, conferences and other forums.
Roger J. Grabowski, Managing Director of Duff &Phelps LLC, is a major speaker at conferences and has testified in court as an expert witness on the value of closely held businesses and business interests, matters of solvency, valuation and amortization of intangible assets and other valuation issues. Roger authors the annual Duff& Phelps' Risk Premium Report.
James P. Harrington, Director in the Office of Professional Practice at Duff & Phelps, is an accomplished financial writer and analyst. He provides technical support on client engagements involving cost of capital and business valuation matters, and leads efforts for development of Duff &Phelps' studies, surveys, online content and tools, and internal models.
Carla Nunes, Director in the Office of Professional Practice of Duff & Phelps LLC, provides firmwide technical guidance on a variety of valuation, financial and tax reporting issues. She has directed multiple valuation assignments for a wide range of industries, including pharmaceutical, biotechnology, healthcare, vitamin retail, specialty chemicals, industrial manufacturing, and gaming and hospitality.
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Introduction xiii
Chapter 1: Results of U.S. Capital Markets in 2015 and in the Past Decade 1-1
A Graphic View of the Decade 1-2
The Decade in Perspective 1-3
Market Results for 2006—2015 1-6
Chapter 2: The Long-Run Perspective 2-1
Stocks, Bonds, Bills, and Inflation: Historical Returns 2-1
Logarithmic Scale Used on the Index Graphs 2-2
Large-Cap Stocks 2-4
Small-Cap Stocks 2-4
Long-term Corporate Bonds 2-4
Long-term Government Bonds 2-4
Intermediate-term Government Bonds 2-4
Treasury Bills 2-4
Inflation 2-5
Summary Statistics of Total Returns 2-5
Appreciation, Income, and Reinvestment Returns 2-7
Annual Total Returns 2-10
Rolling-Period Returns 2-10
Real Estate Investment Trusts (REITs) 2-26
Historical Returns on Equity REITs 2-28
Income Returns on Equity REITs 2-29
Correlation of U.S. REITs Compared to Other U.S. Asset Classes 2-30
Summary Statistics for Equity REITs and Basic Series 2-31
Chapter 3: Description of the Basic Series 3-1
Large-Cap Stocks 3-1
Small-Cap Stocks 3-2
Long-term Corporate Bonds 3-4
Long-term Government Bonds 3-4
Intermediate-term Government Bonds 3-9
U.S. Treasury Bills 3-11
Inflation 3-13
Bond Capital Appreciation Despite Rising Yields 3-13
Chapter 4: Description of the Derived Series 4-1
Derived Series Calculated Using Geometric Differences 4-1
Definitions of the Derived Series 4-1
Equity Risk Premium 4-2
Small-Stock Premium 4-3
Bond Default Premium 4-3
Bond Horizon Premium 4-4
Large-Cap Stock Real Returns 4-5
Small-Cap Stock Real Returns 4-7
Long-term Corporate Bond Returns 4-8
Long-term Government Bond Real Returns 4-9
Intermediate-term Government Bond Real Returns 4-11
Real Riskless Rates of Return (U.S. T-Bill Real Returns) 4-12
Chapter 5: Annual Returns and Indexes 5-1
Annual and Monthly Returns 5-2
Calculation of Returns From Index Values 5-3
Calculation of Annual Income Returns 5-4
Index Values 5-5
Inflation-Adjusted Returns and Indexes 5-7
Chapter 6: Statistical Analysis of Returns 6-1
Calculating Arithmetic Mean Return 6-1
Calculating Geometric Mean Return 6-1
Geometric Mean Versus Arithmetic Mean 6-2
Calculating Standard Deviation 6-3
Limitations of Standard Deviation 6-4
Semivariance and Semistandard Deviation 6-5
Issues Regarding Semivariance 6-6
Volatility of the Markets 6-7
Changes in the Risk of Assets Over Time 6-9
Correlation Coefficients: Serial and Cross-Correlations 6-13
Is Serial Correlation in the Derived Series Random? 6-16
Basic Series Summary Statistics 6-17
Inflation-Adjusted Series Summary Statistics 6-18
Rolling-Period Standard Deviations 6-18
Rolling-Period Correlations 6-20
The True Impact of Asset Allocation on Return 6-21
Chapter 7: Company Size and Return 7-1
Construction of the CRSP Size Decile Portfolios 7-2
Presentation of the Decile Data 7-5
Aspects of the Company Size Effect 7-12
The Size Effect: Empirical Evidence 7-12
Long-term Returns in Excess of Systematic Risk 7-15
Serial Correlation in Small-Cap Stock Returns 7-17
Seasonality 7-21
Chapter 8: Growth and Value Investing 8-1
Fama-French Growth and Value Series 8-1
Historical Returns of the Fama-French Series 8-3
Summary Statistics for the Fama-French Series 8-4
Presentation of Annual Fama-French Returns 8-5
Conclusion 8-5
Chapter 9: Liquidity Investing 9-1
What Is Liquidity? 9-1
Valuation as Present Value of Cash Flows 9-1
The Liquidity Premium 9-2
Liquidity and Stock Returns 9-3
Liquidity as an Investment Style 9-4
Conclusion 9-7
What’s Next? 9-7
Chapter 10: Using Historical Data in Wealth Forecasting and Portfolio Optimization 10-1
Probabilistic Forecasts 10-1
Mean-Variance Optimization 10-4
Estimating Returns, Risks, and Correlations 10-5
Using Inputs to Form Other Portfolios 10-9
Enhancements to Mean-Variance Optimization 10-11
Markowitz 1.0 10-13
Markowitz 2.0 10-14
Approaches to Calculating the Equity Risk Premium 10-19
The Historical Equity Risk Premium 10-20
The Supply-Side Model 10-27
Chapter 11: Stock Market Returns From 1815–2015 11-1
1815–1925 Data Series Sources and Collection Methods 11-1
Price Index Estimation 11-3
144 Years of Stock Market Drawdowns 11-9
Reaching Back Beyond 1926 11-13
The Origin of Market Bubbles 11-13
Chapter 12: International Equity Investing 12-1
Construction of the International Indexes 12-1
Benefits of Investing Internationally 12-2
Risks Typically Associated With International Investment 12-8
International and Domestic Series Summary Data 12-14
Conclusion 12-16
Appendix A – Monthly and Annual Returns of Basic Series
Appendix B – Cumulative Wealth Indexes of Basic Series
Appendix C – Rates of Return for All Yearly Holding Periods 1926–2015
