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Empirical Probability Distributions of Real Return from Swedish Stock and Bond Portfolios

Author

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  • Graflund, Andreas

    (Department of Economics, Lund University)

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.

Suggested Citation

  • Graflund, Andreas, 2001. "Empirical Probability Distributions of Real Return from Swedish Stock and Bond Portfolios," Working Papers 2001:16, Lund University, Department of Economics, revised 29 Jan 2002.
    • Handle: RePEc:hhs:lunewp:2001_016
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    File URL: http://project.nek.lu.se/publications/workpap/Papers/WP01_16.pdf
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    References listed on IDEAS

    as
    1. Paparoditis, Efstathios & Politis, Dimitris N., 2001. "A Markovian Local Resampling Scheme For Nonparametric Estimators In Time Series Analysis," Econometric Theory, Cambridge University Press, vol. 17(3), pages 540-566, June.
    2. Fishburn, Peter C, 1977. "Mean-Risk Analysis with Risk Associated with Below-Target Returns," American Economic Review, American Economic Association, vol. 67(2), pages 116-126, March.
    3. repec:bla:scandj:v:99:y:1997:i:2:p:335-50 is not listed on IDEAS
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    More about this item

    Keywords

    Empirical distribution; stock returns; bond returns; real return; markovian bootstrap; MCMC;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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