>Doug asks:
>
>>Why, if stocks are more volatile than bonds, should they return more?
>
>I think there's a clue buried in this story:
>
>>>there may just be something
>>>special about American capital markets
>
>Note the emphasis on _American_ capital markets. And there is: it's
>called liquidity, transparency, and regulation. Despite all the
>terrible stories you hear, on par, it's very difficult to be a
>publically traded company in the US. You're held to very high
>standards of those three; slip on any one of them, and you get
>dropped like a hot potato. This is related to the phenomenon of
>small-caps: the good ones don't stay small, they fall out of the
>average; so the group as a whole underperforms over time.
>
>So: I think they win because they are well-run companies.
So that means the market is overestimating the risk? Then that should lower returns over time.
I read a paper while researching Wall Street that showed that, statistically speaking, the US was the only stock market in the world that had a return that was greater than 0 in a statistically significant sense. The authors wondered why this was so, and speculated that it had something to do with the US being the world's top capitalist power. And these guys weren't radicals.
>>That may be a twisting of the classic factoid that 80% of futures
>>traders lose money.
>
>And I'm not even sure that's true; every futures contract has a
>winner and a loser at each transaction point including the final
>one. The number you might be misremembering is 80% of options
>contracts expire worthless, which was put out there by "Options on
>Futures" by Summa and Lubow and backed up by some numbers from the
>CME and CBOE, but since American options are often profitable before
>expiry, only something like 60% of the open interest makes it to
>expiration.
No, the factoid was about futures traders. And it could still be correct because there are a large number of public speculators and a relatively small number of commercials and professionals. So 80% of *traders* could lose money even if 80% of *trades* don't.
Summa, by the way, is a former New School econ student and URPE member. Looks like he's gone on to running a hedge fund.
Doug