Find average arithmetic and geometric based on real returns

Reference no: EM131208383

Investments

Instructions for Asset Returns Paper

Step 1 Extending Siegel (1992) graphs to 2014

This section uses the file "AssetHistoricalReturns" to replicate and extend Siegel (1992) results to 2014.

1. Create a chart that plots the value of a dollar invested in the CPI index (inflation), short-term government bonds (T-Bills), long-term investment grade corporate bonds (AA bonds), long-term high-yield corporate bonds (BBB bonds), U.S. stocks, U.S. small stocks, and real estate. Label and position the chart. Make sure the reader can easily understand the graph.

2. Create another chart similar to the above but this time adjust returns for inflation. (Obviously, for this graph you don't need to plot the inflation itslef.)

3. Comment based on the charts. Some suggestions are: Which assets had higher returns over the 1990-2014 period? Did you expect the ranking in returns between assets? Did all assets compensate investors for inflation? Note on the correlation between returns based on the graph, especially during the financial crisis of 2008. Overall, is the results consistent with Figure A of Siegel (1992)? Explain your answers.

Step 2 Compute Statistics

This section computes statistics and compare them to those of Siegel (1992).

4. Compute average arithmetic, average geometric, and standard deviation based on nominal returns. Compute average arithmetic, average geometric, and standard deviation based on real (inflation adjusted) returns. Create a table and report the annualized statistics for all measures. To annualize returns, multiply the values by 12 (there are 12 months in a year), for standard deviation, multiply the values by √12. Make sure the table is labeled and has captions.

5. Compare your statistics for inflation, U.S. stocks, and U.S. T-bills to those of Siegel. [Siegel report stock statistics in Table I, bond in Table II, and inflation (CPI) in Table III.] Based on your statistics for the 25 year period of 1990-2014 and those of Siegel, what do you think about the trends in returns of stocks and bonds? Is history repeating or are there any structural breaks?

Final Instructions

1. Please copy/paste the relevant results and include everything in ONE document. I will only grade one document. The document should be in PDF format and posted to Canvas portal.

2. Please do not include any raw data in your paper. You are preparing a report/paper similar to Siegel (1992).

3. Please make sure your paper is properly formatted (does not include any of my instructions, fonts are consistent, columns are aligned, etc). This should be a professional looking document. Format (the paper, graphs, and tables, captions) is very important.

Attachment:- Assethistoricalreturns.xlsx

Reference no: EM131208383

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