Stock Returns and Holding Periods

Abstract

While it is generally accepted that equities achieve higher returns than fixed interest on average over the longer run, recent financial market volatility and poor equity performance have raised questions about the required holding period. Our study addresses this issue by examining US stocks and Treasury bills from 1963 to 2011. We find that a 15-year holding period is required to ensure a 95 per cent probability that stocks will outperform the risk-free rate of return. And, for large market capitalisation stock portfolios (favoured by pension funds) the investment horizon is even longer.