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Long-Run Stock Return Distributions: Empirical Inference and Uncertainty

Author

Listed:
  • Dzemski, Andreas

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

  • Farago, Adam

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

  • Hjalmarsson, Erik

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

  • Kiss, Tamas

    (The School of Business, Örebro University, Sweden)

Abstract
We analyze empirical estimation of the distribution of total payoffs for stock investments over very long horizons, such as 30 years. Formal results for recently proposed bootstrap estimators are derived and alternative parametric methods are proposed. All estimators should be viewed as inconsistent for longer investment horizons. Valid confidence bands are derived and should be the focus when performing inference. Empirically, confidence bands around long-run distributions are very wide and point estimates must be interpreted with great caution. Consequently, it is difficult to distinguish long-run aggregate return distributions across countries; long-run U.S. returns are not significantly different from global returns.

Suggested Citation

  • Dzemski, Andreas & Farago, Adam & Hjalmarsson, Erik & Kiss, Tamas, 2025. "Long-Run Stock Return Distributions: Empirical Inference and Uncertainty," Working Papers in Economics 853, University of Gothenburg, Department of Economics.
    • Handle: RePEc:hhs:gunwpe:0853
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    File URL: https://gupea.ub.gu.se/handle/2077/86564
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    References listed on IDEAS

    as
    1. Anarkulova, Aizhan & Cederburg, Scott & O’Doherty, Michael S., 2022. "Stocks for the long run? Evidence from a broad sample of developed markets," Journal of Financial Economics, Elsevier, vol. 143(1), pages 409-433.
    2. Merton, Robert C., 1980. "On estimating the expected return on the market : An exploratory investigation," Journal of Financial Economics, Elsevier, vol. 8(4), pages 323-361, December.
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    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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