Is The United States A Lucky Survivor: A Hierarchical Bayesian Approach
79 Pages Posted: 10 Sep 2020 Last revised: 13 Jan 2025
Date Written: September 10, 2020
Abstract
Using international data, we quantify the magnitude of survivorship bias in U.S. equity market performance, and find that it explains about one third of the equity risk premium in the past century. We model the subjective crash belief of an investor who infers the crash risk in the U.S.~by cross learning from other countries. The U.S. crash probability shows a persistent and widening divergence from the implied global average. We attribute the upward bias in the measured equity premium to crashes that did not occur in-sample and to positive shocks to valuations resulting from learning about the probability.
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- Citations
- Citation Indexes: 3
- Usage
- Abstract Views: 7107
- Downloads: 1373
- Captures
- Readers: 12
- Mentions
- News Mentions: 1