5 ms·
What does the average lifetime of a company have to do with it? I'm not really understanding why you think that is relevant to what the paper is discussing? Th
by freddie_mercury 7y ago
What does the average lifetime of a company have to do with it? I'm not really understanding why you think that is relevant to what the paper is discussing?
The paper isn't comparing "Company A that was in existence from 1926-1944" vs. "Treasury Bills from 1926-2018". It is comparing "Company A from 1926-1944" vs. "Treasury Bills from 1926-1944".
So the average lifetime of a company is irrelevant.
I also don't follow why you think the waters are muddied by consolidation? The paper explicitly discusses how it handles "merger, exchange, or liquidation (CRSP DLSTCD with 2, 3, or 4 as first digit)". If Company B is founded in 1931 and merges with another in 1943 then its lifetime is 1931-1943 and it is compared against Treasury bills over that period, so there's nothing muddied.
- benj111 7y agoCompany A started in 1926. It is either still in business, consolidated with other companies, or gone bust. If the company has gone bust (which I would suggest is most of them) it has probably underperformed treasuries, it is of course possible that dividends could make up for the total loss of capital though. A company that exists from 1926 - 1944 has seen its value go from 0 to X and back to 0, whereas the Treasuries haven't. Consolidation muddies the waters because you have potentially 10s of companies into 1. You've highlighted 1 way of accounting for that, there are other legitimate ways of doing it though. I was though thinking more that you can't look at a current list of stocks and a 1926 list of stocks, you aren't necessarily comparing apples to apples.