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Debt and Equity Returns Revisited

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  • Patric H. Hendershott

Abstract

This paper examines semiannual ex post returns on corporate equities and bonds and six-month Treasury bills over the 1953-84 period with special emphasis on whether returns so far in the 1980s have been usual relative to the previous quarter century. The performance of the equity and bond markets in the 1980s has not been at all unusual, with equity returns being driven by the business cycle and bond returns by unexpected changes in new issue Treasury bond rates. Real six-month Treasury rates have averaged 5½ percentage points,far above the 2 percentage point average since 1953 but about the same as in the 1926-30 period. On an after-tax (roughly 40 percent) basis,however, real bill rate have been in line with the 1950s and 1960s, but significantly above the abnormally low rates in the 1970s.

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  • Patric H. Hendershott, 1984. "Debt and Equity Returns Revisited," NBER Working Papers 1521, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:1521
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    1. N. Gregory Mankiw & Lawrence H. Summers, 1984. "Do Long-Term Interest Rates Overreact to Short-Term Interest Rates?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 15(1), pages 223-248.
    2. Wilcox, James A, 1983. "Why Real Interest Rates Were So Low in the 1970's," American Economic Review, American Economic Association, vol. 73(1), pages 44-53, March.
    3. Peter J. Elmer & Patric H. Hendershott, 1984. "Relative Factor Price Changes and Equity Prices," NBER Working Papers 1449, National Bureau of Economic Research, Inc.
    4. Robert J. Shiller & John Y. Campbell & Kermit L. Schoenholtz, 1983. "Forward Rates and Future Policy: Interpreting the Term Structure of Interest Rates," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 14(1), pages 173-224.
    5. John H. Makin & Vito Tanzi, 1983. "The Level and Volatility of Interest Rates in the United States: The Roles of Expected Inflation, Real Rates, and Taxes," NBER Working Papers 1167, National Bureau of Economic Research, Inc.
    6. Brennan, Michael J. & Schwartz, Eduardo S., 1982. "An Equilibrium Model of Bond Pricing and a Test of Market Efficiency," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 17(3), pages 301-329, September.
    7. Benjamin M. Friedman, 1985. "Corporate Capital Structures in the United States," NBER Books, National Bureau of Economic Research, Inc, number frie85-1.
    8. Hendershott, Patric H, 1981. "The Decline in Aggregate Share Values: Taxation, Valuation Errors, Risk and Profitability," American Economic Review, American Economic Association, vol. 71(5), pages 909-922, December.
    9. Benjamin M. Friedman, 1982. "The Changing Roles of Debt and Equity in Financing U.S. Capital Formation," NBER Books, National Bureau of Economic Research, Inc, number frie82-1.
    10. Patric H. Hendershott & James D. Shilling, 1982. "Capital Allocation and the Economic Recovery Tax Act of 1981," Public Finance Review, , vol. 10(2), pages 242-273, April.
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    1. Hendershott, Patric H & Peek, Joe, 1992. "Treasury Bill Rates in the 1970s and 1980s," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(2), pages 195-214, May.
    2. Patric H. Hendershott & Joe Peek, 1989. "Aggregate U.S. Private Saving: Conceptual Measures," NBER Chapters, in: The Measurement of Saving, Investment, and Wealth, pages 185-226, National Bureau of Economic Research, Inc.
    3. Patric H. Hendershott & Joe Peek, 1987. "Private Saving in the United States: 1950-85," NBER Working Papers 2294, National Bureau of Economic Research, Inc.
    4. Patric H. Hendershott & Joe Peek, 1989. "Interest Rates in the Reagan Years," NBER Working Papers 3037, National Bureau of Economic Research, Inc.

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