Henwood's anti-social security article, a query

Enrique Diaz-Alvarez enrique at anise.ee.cornell.edu
Mon Jan 25 14:28:35 PST 1999


Doug Henwood wrote:


> Of course, there's a surivorship bias in simulating returns over the very
> long term: weak stocks are pruned from the index and strong performers are
> added (e.g. AOL's recent addition to the S&P 500). So the indexes overstate
> the returns claimed by actual stockholders for this, and many other,
> reasons.
>

I don't think the survivorship bias explanation works very well. The changes to the indexes are annouced well in advance, and anybody can replicate their returns.

Another possibility may be that we are at a secular top, and any trend that is measured anywhere-to-peak will be severly overstated. But this only explains away part of the paradox, I think.

How about this: most stock is issued and purchased by the public at market tops. Very little is issued and purchased at bottoms. If so, index returns will overstate actual stockholder returns.

Just a thought.


> Doug

-- Enrique Diaz-Alvarez Office # (607) 255 5034 Electrical Engineering Home # (607) 272 4808 112 Phillips Hall Fax # (607) 255 4565 Cornell University mailto:enrique at ee.cornell.edu Ithaca, NY 14853 http://peta.ee.cornell.edu/~enrique



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