Source: Siegel (2014)
McQuarrie both adjusted and extended Siegel’s data back to the early 1790s. McQuarrie details his efforts in a paper and shares his data on his website (you’ll need to use a Microsoft browser to download it). You can also listen to him describe his efforts on a podcast with Meb Faber.
For stocks, McQuarrie made major revisions to the pre-1871 data by including more stocks, cap-weighting returns, and, most importantly, correcting significant survivorship bias in the original data. According to McQuarrie, “Banks failed during panics, turnpikes and canals succumbed to railroads, and struggling railroads went bust in the 1840s and 1850s to an extent not previously understood. In short, Siegel’s sources had left out the bad parts, producing an overly rosy picture of antebellum stock returns.”
For bonds, McQuarrie engages in an impressive forensic effort to build a new and more accurate data set of investment-grade bonds available to the public. Previous efforts at debt data series had relied on prices imputed from yield and questionable choices such as choosing the bonds with the lowest yields to represent the risk-free rate. McQuarrie instead uses actual corporate bond prices to “discover how an investor in a hypothetical bond index mutual fund would have fared across the centuries.” The Treasury market has been far less consistent in structure and attributes than the corporate bond market, so the corporate bond market may be better suited to a long-term examination of stock versus bond returns. The resulting long-dated (15+ year maturity) bond series more closely approximates the long-dated high end of investment grade today (15+ year AA and AAA bonds). The total returns of this series are close to today’s long-dated Treasury returns, as we will show later. So Professor McQuarrie is comparing equity returns to long-dated very high-quality corporate bond returns.
Below is the fruit of Professor McQuarrie’s labor, a revised chart of the stock and bond return series over the same period as the chart shown above.
Figure 2: Total Real Return on Stocks and Bonds Using McQuarrie Data, 1802–2012
