The New Science of Asset Allocation: Risk Management in a Multi-Asset World

APPENDIX

Risk and Return of Asset Classes and Risk Factors Through Business Cycles

This appendix presents graphs of risks and returns of major asset classes through time. The goal is to familiarize readers with the behavior of these variables as the economy goes through various stages of the business cycle. Our other goal is to show that return and, especially, risk characteristics of asset classes do change through time and some of these changes will be quite dramatic during periods of economic stress.

On the graphs that follow, periods of economic stress are highlighted with shading.

EXHIBIT A.1 S&P 500: Growth of $100

Source: Bloomberg Corporation

EXHIBIT A.2 S&P 500: Volatility

Source: Bloomberg Corporation.

EXHIBIT A.3 NASDAQ Composite: Growth of $100

Source: Bloomberg Corporation.

EXHIBIT A.4 NASDAQ Composite: Volatility

Source: Bloomberg Corporation.

EXHIBIT A.5 Russell 1000 Growth: Growth of $100

Source: Bloomberg Corporation.

EXHIBIT A.6 Russell 1000 Growth: Volatility