Were the Returns from Stocks and Bonds of Different Countries Really Different in the 1980s?

We analyzed the total equity returns of indexes from Australia, Canada, Germany, Japan, the UK, and the US and total fixed income returns of indexes from all but Australia (excluded due to lack of data) to see if the returns of stocks and bonds were statistically different across markets during the 1980s. At the end of 1989, these countries represented over 87% of the market capitalization of the Morgan Stanley Capital International (MSCI) World Equity Index and over 88% of the Salomon Brothers World Bond Index. This study used monthly observations from January 1980 through December 1989 and examined returns based in local currency and hedged and unhedged US dollars.

We found that sample mean stock and bond returns during the 1980s were statistically indistinguishable across countries. However, because the sample variances were so large relative to the sample means, it would have been difficult to detect differences in population means by any test. We found evidence of variance heterogeneity, which may be explainable by other economic factors. We also found that intercountry stock and bond correlations were not significantly different. Thus, we confirmed the results of other researchers, such as Jobson and Korkie (1981), but in a broader global context using more asset types and different statistical tests. Our work suggests reducing the number of input estimates to a MV global asset allocation problem. For practitioners trying to put MV analysis to use, these findings could have a significant effect on the practice of asset allocation.