Examining Historical Returns and Risk for Debt and Equity Assets

This study provides a review of the research that has examined risk and return for various assets. These studies have collectively measured returns and risks for real estate, common stocks, bonds (corporate and government), and treasury bills. The results of these studies show that, using return variability as the measure of risk, equity investments such as common stock have been riskier than debt securities such as corporate or government bonds and treasury bills. Some studies show that real estate returns have been more risky than bonds but less risky than common stocks. Other studies show real estate to have been less risky than either stocks or bonds. Studies examining the correlation between stocks, debt, and real estate showed real estate to have been negatively correlated with stocks and positively correlated with treasury bills. The studies also showed common stockst to have been positively correlated with bonds and negatively correlated with treasury bills. The correlation between real estate and bonds is shown to have been both positive and negative. All the studies indicate that unsystematic risk is reduced by diversifying across real estate, debt, and common stock in a portfolio.