The Skewedness of Stock Returns

I recently read the paper, “Do Stocks Outperform Treasury Bills?” by Hendrik Bessembinder (thanks to a pointer from Michael Batnick), which takes a fascinating look at how skewed stock returns are. When we say that the market returns, say, 10% per year, that’s superficially correct. But as Bessembinder points out, the large majority of stocks don’t do much of anything, and a tiny portion of homerun stocks make up for the entire gain. The numbers are pretty extraordinary.

Bessembinder looked at 25,782 stocks that traded between 1926 and 2015. That comes to 3.5 million one-month time periods. The average stock gained 1.13% compared with the one-month T-bill rate of 0.38%.

But that average is very misleading since most stocks didn’t make money for that month, and even more lost to the T-bill. Although, when we weight its market size, the results get a little better.

After a decade, the “skew” is even more pronounced. The average stock gains 118% while the median stock gains just 14%. Only 37% of individual stocks out perform the market after a decade. Over the course of their lifetime, just 42% of stocks beat the one-month T-bill.

When we talk about total dollars made, just 0.33% of stocks make up for half of the wealth created by the stock market. Less than 4% accounts for the entire market’s gain. The other 96% combined match Treasury bills.

Posted by on April 25th, 2017 at 1:39 pm


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