Do Stocks Outperform Treasury Bills? Evidence From a Swedish Setting

Abstract: Most Swedish stocks listed since 1983 post lifetime buy-and-hold returns that are less than one-month Swedish Treasury bills. In terms of risk-adjusted returns for the same time horizon, individual Swedish stocks vastly underperform value-weighted benchmarks when measured with a Sharpe ratio. These results further illustrate the role which skewness plays in determining the heterogeneous nature of stock return distributions. Much of the observed long-term skewness can be attributed to the compounding effect. The results explain the importance of being well diversified as underdiversification over a lifetime almost always leads to a complete loss of the invested principal.