Are stocks really riskier than bonds?

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Abstract:

Conventional wisdom holds that stocks are riskier than bonds; thus when the stock market becomes volatile, money flows from the stock market into the perceived safe haven of the bond market. In this article, we find that this notion is not necessarily accurate and might lead people to make incorrect investment decisions. In fact, intermediate- and long-term bonds are riskier than stocks when we measure risk by the coefficient of variation. We examine a case where an inaccurate perception regarding the relative riskiness of the two types of assets could play a part in what appears to be short-sighted and potentially costly behaviour of investors in financial markets.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036840701704386

Affiliations: Department of Economics, Ohio University, Athens, Ohio 45701, U.S.A

Publication date: February 1, 2010

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