Distribution of Long-run Stock Returns: Evidence from Japan and the US

We examine the distribution of long-run returns for all stocks listed in Japan and the US from 1977 to 2019. While our findings confirm the extreme skewness in realized long-run returns in the US documented in Bessembinder (2018), they offer two important points of departure. First, we find that over fixed horizons ranging from monthly to semi-decadal, return distributions in Japan are in broad concordance to those in the US – the mean, median, skewness, and fraction of returns greater than the risk-free rate are similar in the two markets. This symmetry is broken at lifetime horizons where the mean return in the US is almost four times as large as that in Japan, while the median return in Japan is seventy times larger than in the US. Second, we find that the probability of being delisted is higher for US-listed firms than for Japan-listed firms, with lifespans, defined as years active on the exchange, being measurably shorter in the US (6.5 years) than they are in Japan (19.3 years). Our results are consistent with a model of long-dated returns presented in Martin (2012) in which long-run stock returns for limited liability assets are characterized by occasional explosions that prevent expected returns from converging to zero.