do stocks outperform treasury bills pdf: key findings

Do Stocks Outperform Treasury Bills?

This article examines the question raised by Hendrik Bessembinder and colleagues: do stocks outperform treasury bills? For readers looking for the PDF or working-paper version, searching for "do stocks outperform treasury bills pdf" will point to the SSRN working paper, the Journal of Financial Economics publication, and the ASU-hosted wealth-creation materials. This review summarizes the paper's data, methods, quantitative highlights, interpretations, robustness checks, criticisms, and practical takeaways for investors and managers.

Brief summary

The core question — do stocks outperform treasury bills? — asks whether individual U.S. common stocks, taken over their full lifetimes with dividends reinvested, on average provide buy-and-hold returns that exceed the return on one-month U.S. Treasury bills. Bessembinder’s headline finding is striking: the positive historical equity premium for broad aggregate markets is driven by a very small fraction of extremely successful firms ("superstars"); most individual stocks, over their lifetimes, do not beat one-month Treasury bills. The working-paper PDF and JFE article document data, wealth-creation accounting, and simulations that support this conclusion.

Background and motivation

The traditional equity-premium view holds that stocks, when held as a broadly diversified portfolio, have historically delivered higher average returns than low-risk government bills or bonds. That equity premium is the foundation for expectations about long-term wealth-building with equities.

But that aggregate statement leaves open an important practical question: if an investor buys a single stock and holds it for that firm's lifetime (from initial CRSP appearance to delisting or the end of the sample), what is the chance the investor will outperform a nearly risk-free benchmark such as one-month Treasury bills? The answer matters for:

• Individual-stock investors who concentrate positions.
• Active managers and stock pickers who claim superior selection skill.
• Portfolio construction decisions and tail-risk management.

Bessembinder framed the issue quantitatively: rather than focusing only on average or cross-sectional mean returns, examine lifetime buy-and-hold returns for each listed stock and decompose aggregate market wealth creation into contributions by individual firms.

The Bessembinder paper — bibliographic details

• Author: Hendrik Bessembinder (Arizona State University, W. P. Carey School of Business).
• Working paper and posting: original working-paper posted on SSRN (search: "do stocks outperform treasury bills pdf" to locate the SSRN file).
• Journal publication: Journal of Financial Economics (2018). The JFE version presents the peer-reviewed article and complements the SSRN working-paper PDF and ASU-hosted supplementary materials.
• Supplementary materials: ASU W. P. Carey has hosted wealth-creation spreadsheets and supporting documents that reproduce and extend many tables from the paper.

As of 2024-01-01, according to ASU W. P. Carey materials, the wealth-creation spreadsheets and supporting files are the recommended starting point for readers who want the underlying data and reproducible calculations.

Data and methodology

Data source and sample period

• Primary data: CRSP monthly returns for U.S. common stocks.
• Sample period in the original paper: 1926–2016 (the paper analyzes the full historical span available from CRSP for common stocks and delisting events).

Definition of lifetime buy-and-hold returns

• Lifetime buy-and-hold return: for each firm, compute the return from the stock’s first appearance in CRSP through either the delisting date (if applicable) or the end of the sample period, assuming dividends are reinvested.
• Delisting returns are handled following CRSP conventions (including delisting returns when available) to approximate actual realized lifetime outcomes.

Key computational methods

• Wealth-creation accounting: aggregate market-level wealth is decomposed into the product (compound sum) of each stock’s contribution (reflecting market capitalization weights at original listing and realized buy-and-hold returns). This approach shows which firms created net aggregate wealth in excess of a benchmark.
• Benchmarking: compare each stock’s lifetime buy-and-hold return to the cumulative return on one-month U.S. Treasury bills over the same period.
• Bootstrapping and simulations: the paper uses bootstrap sampling and simulated strategies (e.g., randomly selecting single stocks or small portfolios) to quantify probabilities of underperformance relative to the market and to the T-bill benchmark.
• Subperiod and firm-level analyses: analyses by decade, by firm size, and by listing vintage are used to study heterogeneity.

Main findings

• Aggregate vs. individual results: while the aggregate U.S. stock market has historically outperformed one-month Treasury bills (producing a positive equity premium), most individual stocks, when held over their lifetimes, do not exceed one-month T-bills.
• Concentration of wealth creation: a very small fraction of firms (Bessembinder highlights a group on the order of a few percent of the listed firms) account for essentially all of the net aggregate wealth creation above the T-bill benchmark.
• Superstar firms: wealth creation is extremely skewed — a tiny set of "superstar" companies generate outsized returns that lift the aggregate market performance.
• Skewness and compounding: positive skewness of returns and long-run compounding of extreme winners explain how the market-level equity premium can coexist with the unimpressive lifetime performance of most individual stocks.
• Implication for single-stock investors: picking and holding a randomly selected individual stock over its lifetime carries a high probability of underperforming short-term Treasury bills; capturing the market’s historical premium requires either broad diversification or successfully owning one of the rare extreme winners.

How this changes the narrative

Bessembinder reframes the equity-premium question from an average-return perspective to a wealth-creation perspective. Instead of asking whether the mean stock return is higher than the mean return on T-bills, he asks which firms actually contributed to aggregate wealth — and finds that nearly all of the contribution is concentrated in very few firms.

Quantitative highlights

• Sample size and period: more than 26,000 U.S. common-stock listings between 1926 and 2016 (CRSP universe in the paper).
• Concentration: roughly 4% of firms account for net positive market wealth creation above one-month T-bills across the full sample (the paper emphasizes that a small percentage of firms are responsible for most of the market’s long-run gains).
• Majority underperformance: a majority of individual stocks have lifetime buy-and-hold returns that do not exceed the cumulative return on one-month Treasuries over the same lifetime.
• Skewness: a small number of extreme winners produce compounding returns that dominate aggregate wealth-creation; the distribution of firm-level contributions is heavily right-skewed.
• Simulations: in bootstrap and random-single-stock simulations, the probability that a randomly chosen single-stock buy-and-hold strategy outperforms the market or one-month T-bills is low in most subperiods (the paper reports that single-stock strategies underperform in the vast majority of simulated runs).
• Listing duration: many firms have relatively short listing horizons (measured in years rather than decades), which limits the time for compounding to produce outsized outcomes for typical firms.

(Each of the above figures and exact percentages are reported and discussed with tables and spreadsheets in the SSRN working paper and JFE publication; consult the original PDF and ASU wealth-creation files for cell-level replication.)

Mechanisms and interpretation

Why do these results occur?

• Skewness of returns: stock returns have a positively skewed distribution where a few extremely high-return firms drive the long-run aggregate outcomes. The arithmetic mean can be pulled up dramatically by outliers even when the median firm does poorly relative to safe bills.
• Compounding: the outsized winners compound over long horizons, generating very large wealth multipliers. Even if rare, once they occur they dominate aggregate market wealth.
• Short firm lifespans and attrition: many firms have brief listing lifetimes and may be acquired, fail, or otherwise delist before producing large gains, reducing the chance for the typical firm to become a superstar.
• Diversification: a broad, market-cap-weighted portfolio increases the chance of holding the eventual winners; concentrated portfolios are unlikely to hold the tiny set of superstars.

Implications for active vs passive management

• Active stock pickers aiming to beat the market must either consistently identify the rare future superstars or aggregate many bets to increase the chance of holding winners — a difficult task.
• Passive, broadly diversified indexing or strategies that capture the full market are more likely to capture the net wealth creation from the few extreme winners and thus the historical equity premium.

Interpretation for single-stock investors

• Holding a single stock introduces high idiosyncratic risk: the return distribution is dominated by rare extreme outcomes.
• The historical data imply that luck (owning a rare winner) plays a major role; skillful selection would need to systematically pick those future winners to overcome the odds.

Robustness checks and extensions

Bessembinder performs and cites several robustness checks; other researchers extended and tested the idea.

Key robustness analyses in the paper

• Bootstrapping: resampling procedures to test whether the concentration results are likely due to sampling variation.
• Alternative benchmarks: comparisons with different safe-rate benchmarks and different sample windows to test sensitivity.
• Subperiod analyses: dividing the long sample into subperiods or decades to test whether concentration patterns persist across time.
• Size effects: examining whether the concentration can be explained solely by large firms or whether winners come from a broader size range.

Updates and data extensions

• ASU-hosted updates: the ASU W. P. Carey materials include wealth-creation spreadsheets and have had subsequent updates and community extensions replicating and extending the original analysis to later years and other datasets.
• Cross-country and extended-sample work: subsequent research has explored whether similar concentration patterns hold in other countries and extended time frames.

Related research and commentary

Bessembinder’s study sits at the intersection of literature on the equity premium, idiosyncratic risk, and return skewness. Key related themes include:

• Studies on skewness and tail returns: earlier work documents non-normality and heavy tails in equity returns and the importance of outliers.
• Research on active management and alpha: Bessembinder’s findings have been cited in debates about whether active managers can consistently beat the market given the concentration of returns.
• Practitioner notes and commentary: asset managers and institutional investors have produced notes and presentations summarizing the practical implications; many use Bessembinder’s wealth-creation spreadsheets to illustrate diversification arguments.

Examples of practitioner commentary include long-form investment notes and asset-manager slide decks that use the wealth-creation decomposition to argue for broad diversification and indexing strategies.

Criticisms, caveats, and limitations

No single paper is definitive; several critiques and caveats are worth keeping in mind.

Technical and measurement caveats

• Listing and delisting mechanics: CRSP entry and exit mechanics, delisting return conventions, and the handling of acquisitions can affect lifetime return calculations.
• Survivorship vs. complete listing coverage: while CRSP is comprehensive for listed U.S. common stocks, differences in coverage and data-cleaning choices can change results marginally.
• Benchmark choice and entry price: comparing lifetime buy-and-hold returns to one-month T-bills assumes an investor enters at the first CRSP appearance; investors who enter later or time the market face different prospects.
• Transaction costs and taxes: the simple buy-and-hold comparisons ignore trading costs, bid-ask spreads, and taxes that could influence realized investor returns.

Interpretive caveats

• Skill vs luck: the paper does not claim that skill is impossible; it shows that the historical pattern makes consistent identification of future superstars both crucial and difficult.
• Cross-country variation: results derived from U.S. data may differ in other markets with different listing dynamics and investor structures.
• Time-varying dynamics: market regimes change; the historical sample may not perfectly predict future concentration patterns.

Practical implications for investors and managers

Actionable takeaways (non-investment-advice, informational):

• Diversify broadly: to capture the historical aggregate premium, broad-market exposure or passive indexing increases the chance of owning the small set of extreme winners.
• Be cautious with concentrated single-stock bets: holding a few individual names raises the probability of underperforming the safe benchmark and missing the rare winners.
• Long horizons help but do not guarantee success: long holding periods enable compounding, but only holdings that become outsized winners will produce the large gains that drive aggregate wealth creation.
• Active managers need differentiated advantages: to outperform net of fees and costs, active strategies must either identify future superstars or add other sources of return that are not captured by naive buy-and-hold comparisons.

For Bitget users

• For traders and investors seeking diversified exposure and efficient market access, consider exploring Bitget’s suite of products and custody options—diversification and disciplined portfolio construction are consistent with the practical implications of Bessembinder’s findings.

Data sources, reproducibility, and resources

Where to find the paper and supporting materials:

• Search for the SSRN working paper using the title to obtain the working-paper PDF (search term: "do stocks outperform treasury bills pdf").
• Look for the Journal of Financial Economics (2018) published article for the peer-reviewed version.
• ASU W. P. Carey hosts the author’s wealth-creation spreadsheets and supporting materials; these spreadsheets are recommended for replication and for accessing the firm-level contribution tables.

Note: direct external links are not provided here; use the paper title and the search term "do stocks outperform treasury bills pdf" in academic repositories or your institution’s library to locate the SSRN PDF, the JFE record, and the ASU-hosted files.

Impact and reception

Since publication, Bessembinder’s paper has had substantial academic and practitioner impact. It has:

• Fueled debate about the nature of the equity premium and the role of outlier firms.
• Been widely cited in academic literature investigating return skewness and idiosyncratic outcomes.
• Been used by investment professionals and commentators to explain why diversification and passive exposure can be more reliable ways to capture market wealth creation than concentrating in a small set of stocks.

Media coverage and practitioner notes have emphasized the "one-percent-of-firms-matter-most" intuition and used the wealth-creation graphics to illustrate the argument for broad market exposure.

See also

• Equity premium
• Skewness in returns
• Diversification
• CRSP database
• Buy-and-hold strategy

References and further reading

Primary source:

• Bessembinder, Hendrik. "Do Stocks Outperform Treasury Bills?" (working paper and Journal of Financial Economics, 2018). For readers seeking the original materials, search for the working-paper PDF with the query "do stocks outperform treasury bills pdf" on academic repositories, and consult the ASU W. P. Carey supplementary spreadsheets for data replication.

Suggested complementary materials:

• ASU W. P. Carey wealth-creation spreadsheets and replication files (search via the author/institution).
• Practitioner summaries and investor presentations that apply the wealth-creation decomposition to asset allocation discussions.

Further exploration

Want to dig deeper? Search for the working-paper PDF with the query "do stocks outperform treasury bills pdf", review the ASU supplemental spreadsheets to reproduce the tables, and test the findings on your own sample or alternate country datasets.

Explore Bitget for diversified market access and custody solutions—learn how disciplined exposure and portfolio construction can help capture long-run market outcomes.

As of 2024-01-01, according to ASU W. P. Carey materials, the wealth-creation datasets and spreadsheets provide the clearest path to reproduce the paper’s tables and to run updated analyses on more recent years.

Further practical notes

• If you are an investor or manager: use the wealth-creation framework as a diagnostic tool. It emphasizes the importance of extreme winners in long-run equity returns and the statistical reality that most firms do not become those winners.
• If you are a student or researcher: download the working-paper PDF (search term: "do stocks outperform treasury bills pdf") and the ASU-hosted replication files to reproduce the analysis and test extensions.

More practical guidance and tools are available on Bitget—explore tutorials and institutional-grade custody features to support diversified strategies.

Note: This article summarizes published findings and associated replication resources. It is informational and not investment advice. For the original data, tables, and the official working-paper PDF search for the phrase "do stocks outperform treasury bills pdf" in academic repositories or consult your institutional library.