The Changing Nature of Stock and Bond Volatility

This article examines the changing nature of U.S. stock and bond risk from 1871 through 2000 and the implications for asset allocation. Using geometric means and standard deviations, we examine nominal and inflation-adjusted monthly returns over nonoverlapping 5-year periods, as well as annual retur...

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Bibliographic Details
Published in:Financial analysts journal 2004-01, Vol.60 (1), p.100-113
Main Authors: Jones, Charles P., Wilson, Jack W.
Format: Article
Language:English
Subjects:
Asset allocation
Bias
Bond portfolios
Bonds
Capital assets
Capital market
Common stock
Comparative analysis
Consumer Price Index
Economics
Finance
Financial portfolios
Geometric mean
Inflation rates
Investment
Investments
Macroeconomics
Portfolio Management
Portfolio performance
Rates of return
Risk
Risk assessment
Standard deviation
Statistical discrepancies
Statistical variance
Stock exchange
Stock exchanges
Stock prices
Stocks
Studies
Time series
Treasury bonds
U.S.A
Variables
Volatility
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Summary:This article examines the changing nature of U.S. stock and bond risk from 1871 through 2000 and the implications for asset allocation. Using geometric means and standard deviations, we examine nominal and inflation-adjusted monthly returns over nonoverlapping 5-year periods, as well as annual returns over periods of approximately 25 years, and we document how stock and bond volatility changed over the period. Our analysis suggests that the relative change in the volatility of stocks and volatility of bonds over the past 50 years has increased the importance of stocks in asset allocation. The change is even more pronounced when inflation is considered.
ISSN:0015-198X
1938-3312
DOI:10.2469/faj.v60.n1.2595