Reconsidering Returns / Samuel M. Hartzmark, David H. Solomon.

Format:

Book

Author/Creator:

Hartzmark, Samuel M.

Contributor:

National Bureau of Economic Research.

Solomon, David H.

Series:

Working Paper Series (National Bureau of Economic Research) no. w27380.

NBER working paper series no. w27380

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2020.

Summary:

Investors' perception of performance is biased because the relevant measure, returns, is rarely displayed. Major indices ignore dividends thereby underreporting market performance. Newspapers are more pessimistic on ex-dividend days, consistent with mistaking the index for returns. Market betas should track returns, but track prices more than dividends, creating predictable returns. Mutual funds receive inflows for "beating the S&P 500," price index based on net asset value (also not a return). Investors extrapolate market indices, not returns, when forming annual performance expectations. Displaying returns by default would ameliorate these issues, which arise despite high attention and agreement on the appropriate measure.

Notes:

Print version record

June 2020.