Triumph of the Optimists: 101 Years of Global Investment Returns

By Elroy Dimson; Paul Marsh et al. | Go to book overview

Chapter 2 World markets: today and yesterday

This book is about the long-run performance of equities, bonds, bills, inflation, and exchange rates around the world over the 101-years from 1900–2000.

Our story begins at the end of our 101-year period by looking at world markets as they stand today. In sections 2.1 and 2.2, we examine the world’s stock and bond markets in terms of their size and significance and the split between markets and countries. This helps set in perspective the importance of the markets and the sixteen countries covered in this study.

In section 2.3, we review why these huge markets exist and what functions they perform. Then in section 2.4, our story moves back to the start of our period and we review what stock and bond markets looked like at the end of 1899. Stock and bond markets, of course, existed long before 1899, and so we also delve back into history to examine briefly their origins. Section 2.5 looks more closely at the US and UK stock markets at the end of 1899, and compares their relative size and importance then with the position at the end of 2000.

Continuing on this comparative theme, section 2.6 provides some interesting snapshots of how the corporate landscape has changed over time by looking at the industrial composition of the US and UK stock markets, and how this has evolved since 1900. Similarly, section 2.7 provides international comparisons of stock market concentration, showing how this has changed over the last 101 years in the US and UK markets. This sheds light on an issue of current concern in many countries, namely, whether markets have become unusually or overly concentrated in a relatively small number of stocks. Section 2.8 provides a summary.


2.1 The world’s stock markets today

Today, there are stock markets in at least 111 different countries around the world. At the start of 2000, the combined value of the shares traded on these markets exceeded $36 trillion (i.e., $36,000,000 million, or if you really like zeros, $36,000,000,000,000).

Table 2–1 lists the world’s major stock markets by country. Many countries have more than one stock exchange. For example, the United States has not only the New York Stock Exchange (NYSE), but also Nasdaq, the American Stock Exchange (Amex), and several smaller exchanges. In Table 2–1, for simplicity, we have aggregated all exchanges within each country to show just a single countrywide figure. The table lists the world’s top twenty countries by aggregate equity market capitalization, as well as three other countries that are included here because they form part of the sixteen countries covered in this book. For each country, Table 2–1 shows the total value of the equity market in billions of dollars, the percentage of the total world market which this represents, and the country’s ranking by market size. The next two columns show the country’s GDP in billions of US dollars, and the proportion of the total GDP that this represents. The final row of the table shows the world total, while the penultimate four rows show the aggregated figures for all the remaining countries that have stock markets, sub-totalled by geographical region.

-11-

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Triumph of the Optimists: 101 Years of Global Investment Returns
Table of contents

Table of contents

  • Title Page iii
  • Contents vii
  • Preface xi
  • Part One- 101 Years of Global Investment Returns 1
  • Chapter 1- Introduction and Overview 3
  • Chapter 2- World Markets- Today and Yesterday 11
  • Chapter 3- Measuring Long-Term Returns 34
  • Chapter 4- International Capital Market History 45
  • Chapter 5- Inflation, Interest Rates, and Bill Returns 63
  • Chapter 6- Bond Returns 74
  • Chapter 7- Exchange Rates and Common-Currency Returns 91
  • Chapter 8- International Investment 105
  • Chapter 9- Size Effects and Seasonality in Stock Returns 124
  • Chapter 10- Value and Growth in Stock Returns 139
  • Chapter 11- Equity Dividends 149
  • Chapter 12- The Equity Risk Premium 163
  • Chapter 13- The Prospective Risk Premium 176
  • Chapter 14- Implications for Investors 195
  • Chapter 15- Implications for Companies 211
  • Chapter 16- Conclusion 220
  • Part Two- Sixteen Countries, One World 225
  • Chapter 17- Our Global Database 227
  • Chapter 18- Australia 229
  • Chapter 19- Belgium 234
  • Chapter 20- Canada 239
  • Chapter 21- Denmark 244
  • Chapter 22- France 249
  • Chapter 23- Germany 254
  • Chapter 24- Ireland 259
  • Chapter 25- Italy 264
  • Chapter 26- Japan 269
  • Chapter 27- Netherlands 274
  • Chapter 28- South Africa 279
  • Chapter 29- Spain 284
  • Chapter 30- Sweden 289
  • Chapter 31- Switzerland 294
  • Chapter 32- United Kingdom 299
  • Chapter 33- United States 306
  • Chapter 34- World 311
  • References 316
  • About the Authors 331
  • Index 333
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