Stock Investors' Returns are Exaggerated

Stock Investors' Returns are Exaggerated

Jesse Fried, Paul Ma, Charles Wang

Series number :

Serial Number: 

Date posted :

November 30 2021

Last revised :

November 30 2021
SSRN Share


  • All-shareholder returns • 
  • capital flows • 
  • dividend reinvestment • 
  • equity premium • 
  • market timing • 
  • total shareholder returns

The stock market generates less wealth than it appears. We show that total shareholder return (TSR), the standard measure of stock investor performance, substantially exaggerates returns earned by these investors in aggregate, and thus by most investors.

The main reason: from investors' collective perspective, dividends cannot be reinvested in public equity, as TSR assumes, but only in other lower-yielding assets. In addition, TSR is inflated by well-timed repurchases and equity issuances that merely transfer value among investors. We put forward another measure--"all-shareholder return" (ASR)--which better captures the wealth generated by the stock market for investors. We estimate that the ASR equity premium is 17 to 73% lower than the TSR-implied equity premium, depending on the investment alternative. We also estimate that the wedge between ASR and TSR is primarily driven by the reinvestment effect. However, over time, the reinvestment effect declines while the timing effect of cash flows increases, consistent with rising stock issuances and buybacks.


Real name:
Paul Ma