Basic Equity Return Statistics

Posted in Big Ideas, Equity Premium


What do the basic statistics of stock market returns tell us about risk and predictability? Basic statistics are the measures of the moments of the return distribution: mean (average), standard deviation, skewness and kurtosis. Are┬áthese stock market return statistics (and the risk-reward environment they describe) stable over time? Do they reliably relate to future returns? To make the investigation tractable, we calculate these four statistics month-by-month based on daily returns. Using daily closes of the Dow Jones Industrial Average (DJIA) for January 1930 through April 2014 (1012 months) and the S&P 500 index for January 1950 through April 2014 (772 months), we find that: (more…)

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