Is The United States A Lucky Survivor: A Hierarchical Bayesian Approach

79 Pages Posted: 10 Sep 2020 Last revised: 13 Jan 2025

See all articles by Jules H. van Binsbergen

Jules H. van Binsbergen

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

Sophia Hua

University of Pennsylvania - The Wharton School

Jessica A. Wachter

University of Pennsylvania - Finance Department; National Bureau of Economic Research (NBER); Securities and Exchange Commission

Jonas Peeters

University of Pennsylvania - Finance Department

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.

undefined

Suggested Citation

van Binsbergen, Jules H. and Hua, Sophia and Wachter, Jessica A. and Peeters, Jonas, Is The United States A Lucky Survivor: A Hierarchical Bayesian Approach (September 10, 2020). Jacobs Levy Equity Management Center for Quantitative Financial Research Paper, Available at SSRN: https://ssrn.com/abstract=3689958 or http://dx.doi.org/10.2139/ssrn.3689958

Jules H. Van Binsbergen

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org/people/jules_vanbinsbergen

Sophia Hua

University of Pennsylvania - The Wharton School ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

Jessica A. Wachter (Contact Author)

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
215-898-7634 (Phone)
215-898-6200 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Securities and Exchange Commission ( email )

100 F Street NE
Washington, DC 20549
United States

Jonas Peeters

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

0 References

    0 Citations

      Do you have a job opening that you would like to promote on SSRN?

      Paper statistics

      Downloads
      1,415
      Abstract Views
      7,300
      Rank
      28,914
      PlumX Metrics
      Plum Print visual indicator of research metrics
      • Citations
        • Citation Indexes: 3
      • Usage
        • Abstract Views: 7107
        • Downloads: 1373
      • Captures
        • Readers: 12
      • Mentions
        • News Mentions: 1
      see details