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Very Long Term Equity Investment Strategies

Real Stock Prices and Mean Reversion

Owain AP Gwilym, James Seaton and Stephen H Thomas
The Journal of Investing Summer 2008, 17 (2) 15-23; DOI: https://doi.org/10.3905/joi.2008.707214
Owain AP Gwilym
A professor of finance at the School of Management and Business, University of Wales in Aberystwyth, U.K.
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  • For correspondence: oma@aber.ac.uk
James Seaton
A research fellow at Cass Business School in London, U.K.
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  • For correspondence: james.seaton.1@city.ac.uk
Stephen H Thomas
A professor of finance at Cass Business School in London, U.K.
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  • For correspondence: stephen.thomas.1@city.ac.uk
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Abstract

Recent popular research has suggested that it is possible to time the U.S. equity market over long investment horizons by looking at the real value of the aggregate stock market index relative to an average of the recent past levels. This article shows that this is not the case and that a simple buy-and-hold equity strategy dominates for nearly all time periods for both the U.S. and the U.K. in the 20th century. However, the aggregate real stock price is a more useful long-run valuation metric than incorporating dividend and earnings information, a result that has potential value for investment managers, given the problems with definitions and consistency of these variables.

TOPICS: Security analysis and valuation, performance measurement, exchanges/markets/clearinghouses

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Very Long Term Equity Investment Strategies
Owain AP Gwilym, James Seaton, Stephen H Thomas
The Journal of Investing May 2008, 17 (2) 15-23; DOI: 10.3905/joi.2008.707214

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Very Long Term Equity Investment Strategies
Owain AP Gwilym, James Seaton, Stephen H Thomas
The Journal of Investing May 2008, 17 (2) 15-23; DOI: 10.3905/joi.2008.707214
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