Global financial Data has calculated a new World Index that extends from the beginning of stock markets in Amsterdam in 1601 to the present day.  It will succeed the original World Index that GFD first calculated 20 years ago.  With the World Index 2.0 we can clearly distinguish the four eras that the stock market has evolved through during the past 400 years: Mercantilism, Free Trade, Regulation and Globalization. We can analyze how the stock market behaved in each of the four eras as well as each global bull and bear market the market has passed through during the past 400 years. Until now, no one has calculated a World Index that precedes 1900 and no one has calculated an index which is reweighted on a regular basis. Now, an index that provides a complete history of global equity markets is available. GFD also provides world bond indices that can be compared to the global equity indices, and calculates sub-indices that include the World excluding the United States, the World excluding the US and UK, a European Index, an index for Emerging Markets and others. Without these global composites, it is impossible to understand the behavior of stocks, bonds and bills over the past 400 years.  

The Four Eras

Global Financial Data divides the past four centuries of the stock market into four eras: Mercantilism (1601-1799), Free Trade (1800-1914), Regulation (1914-1981), and Globalization (1981-).  The stock market was fundamentally different during those four eras affecting equity and bond returns, the dividend yield and the equity risk premium. During the period of Mercantilism, government favored national monopolies that could trade with the rest of the world.  The Dutch had the East India Company (Vereenigde Oost-Indische Compagnie) and the West India Company (Geoctroyeerde Westindische Compagnie).  The French had its own East India Company (Compagnie des Indes) which traded in all parts of the world.  England had three companies which dominated their stock market during the 1700s, the Bank of England, the East India Co. and the South Sea Co. In addition to these three companies, British 3% Consols represented the majority of trading in London as Britain funded its wars in the 1700s through debt and investors sought a reliable source of income. Data in the index before 1692 includes only one company, the Dutch East India Company. The Committee of Public Safety banned all joint-stock companies in France on August 24, 1793. The Dutch East India Company was nationalized in 1796 and dissolved in 1799, and the Dutch West India Company was purchased by the Dutch government on January 1, 1792. While financial markets were closing down on the continent, markets were reborn in England and in the United States.  The Bank of Ireland was founded in 1783 and the Irish Grand Canal in 1784.  During the 1790s, Britain went through its first canal mania with investors in the British midlands investing in canals that could carry the output of their mills to the rest of the country. The Bank of North America was established in 1784 and the Bank of the United States was incorporated in 1791.  Hundreds of banks and insurance companies were incorporated in the United States in the decades that followed.  The Banque de France was established in 1800. Growth really began with the establishment of railroads in the 1820s and 1830s which by the 1840s dominated stock markets in the United States, the United Kingdom, France, Germany and other countries. Although free trade didn’t exist in 1800, the foundations of the global economy were being laid. The period of Free Trade came to an abrupt end when World War I began. By July 31, 1914, virtually every stock market in the world had closed to prevent shareholders from selling their stocks and bonds.  Capital was no longer free to cross borders.  Financial markets faced restrictions they had never faced before. During World War I, capital flowed into government bonds, not corporate coffers. Even when stock exchanges reopened, price restrictions limited the amount of trading that could occur. The Berlin and St. Petersburg stock exchanges didn’t reopen until 1917, and the St. Petersburg stock exchange closed when the October Revolution led to the Communists seizing power in Russia. The period from 1914 until 1981 was one of government control over financial markets through regulation after World War I, and nationalization after World War II.  Capital controls limited the ability of money to flow from one country to another. Before 1914, global financial markets were integrated and bond interest rates converged to the international average.  After 1914, national stock and bond markets moved independently of one another. Different domestic inflation rates and risk of default produced different national interest rates. By 1981, interest rates were peaking and equities were in a bear market. The integration of global financial markets was once again seen as a solution to allocating capital more efficiently. After the Soviet Union collapsed in 1991, stock markets were reestablished in St. Petersburg and other former Communist countries including China. European governments privatized industries that had been nationalized after World War II, and in the United States regulated industries were deregulated.  Deregulation affected banks, railways, telecommunications and utilities, the steel industry, airlines, and other infrastructure-related industries.  The impact of introducing globalization is visible in Figure 1 which adjusts GFD’s World Index for inflation.  There was almost no change in the value of the index until the 1980s when Globalization began and the index exploded upward.

The impact of these changes is also visible in Figure 2 which shows global stock market capitalization as a share of GDP from 1900 until 2018. Between 1914 and 1981, there was no increase in world stock market capitalization as a share of GDP, but after 1981, this ratio increased dramatically. Despite opposition to Globalization in some countries, the integration of global capital markets is likely to continue for the future.

Figure 2. Global Stock Market Capitalization Relative to Global GDP

 

Calculation of the Indices

Data from 1601 to 1815 is market-cap weighted by company. The index includes 38 companies from the United Kingdom, 3 from France, 3 from the Netherlands and 29 from the United States creating a total of 73 companies the index is based upon. We have data on the price, dividends and shares outstanding for each company.  If any of those three variables was unavailable, we excluded the company from the index. Beginning in 1815, we use indices from each country as the basis for the index and weight each country according to actual or estimated market caps for that country.  The market caps are revised every five years, and these are used to weight each country in the index for the next five years.  We use the market caps on December 31, 1814 for the weights between 1815 and 1819, the market cap on December 31, 1819 for the weights between 1820 and 1825, etc.  Price and return indices are monthly in periodicity using end-of-month values. All values were converted to British Pounds for the data through 1815, and all data after 1815 were converted to United States Dollars. Data for the price indices, return indices, and stock market capitalization that were used to calculate these indices are available from Global Financial Data. Twenty-four countries are included in the developed indices: Australia (1825-), Austria (1925-), Belgium (1900-), Canada (1825-), Denmark (1875-), Finland (1915-), France (1718-1793, 1801-), Germany (1835-), Hong Kong (1965-), Ireland (1800-), Italy (1925-), Japan (1915-), Luxembourg (1930-), Netherlands (1601-1794, 1915-), New Zealand (1865-), Norway (1915-), Portugal (1980-), Russia (1865-1928), Singapore (1965-), Spain (1915-), Sweden (1870-), Switzerland (1915-), United Kingdom (1692-) and the United States (1792-).  All other countries were treated as emerging markets and excluded from the index.  Tsarist Russia before 1918 is treated as a developed market and data for the Russian Federation after 1991 is treated as an emerging market.  Twenty-six countries are used in the emerging market indices increasing the total number of countries that are included to fifty.A graph of the index for the twenty-four developed markets is provided in Figure 3.

Figure 3. GFD World Price Index, 1601 to 2019

Since these are market-cap weighted indices, a few countries figure prominently in the calculation of the index. Figure 4 shows the market cap of countries between 1900 and 2000. The United States clearly represents the largest portion of the market cap. Britain represented a large portion of the market cap until the 1950s and between those two countries, the United States and the United Kingdom represented 60% to 70% of the market cap during most of the twentieth century.

Figure 4. Market Capitalization Weights by Country 1900 to 2018

The role of the Anglo-Saxon countries became particularly important during the period of Regulation between 1914 and 1981. If you add the other Anglo-Saxon countries of Canada, Australia and New Zealand to the United States and the United Kingdom, those five countries represented almost 80% of the global stock market capitalization in the 1950s and 1960s. Even today, these five countries represent over 63% of the total market capitalization of S&P’s World Broad Market Index. For this reason, we have calculated a number of indices that exclude the larger countries from the indices so the performance of the smaller countries can be tracked. In addition to the World Developed index, we also calculate equity and bond indices that exclude the United States, exclude the United States and Canada, exclude the United States and the United Kingdom, exclude the five Anglo countries, and include only the Anglo countries. We also calculate indices for Europe, Europe excluding the United Kingdom, Europe excluding the United Kingdom, France and Germany, the Euro-11 and the G-7. A comparison of the performance of the United States, the United Kingdom and France with the World index in Figure 5 shows the clear benefits of diversification. The World Index has outperformed all three countries since 1800. France was the top performing country up until the 1860s, primarily because of its strong recovery out of the bear market of 1848, but the French stock market made virtually no progress between the 1860s and 1970s. The United States was the top performer after 1860 and the United Kingdom did well between 1974 and 2008.

Figure 5. GFD World, USA, United Kingdom and France Price Indices, 1800 to 2018

The blip in the index during the 1860s is due to the American Civil War when the U.S. Dollar depreciated relative to other currencies. Although you often hear about the Railway Mania in England in the 1840s, the impact of railroads was even greater in France than it was in England. France had a severe downturn in 1848, but recovered quickly. However, France underperformed relative to the rest of the world between 1914 and 1981, due to the inflation and the nationalizations that France suffered after World War II. Although the British stock market lost half of its value during the 1929-1932 depression, British stocks were hit even more severely during the 1973 crash when the stock market fell over 70% because inflation and government bond yields went over 20%. The United States underperformed in the early 1800s because the U.S. index only included finance stocks. The United States outperformed the rest of the world after the civil war, but had its worst decline during the 1929-1932 Depression. Since 1900, as can be seen in Figure 6, the United States has outperformed the rest of the world. The World excluding the United States has provided a similar performance to Great Britain with French stocks the clear loser. It should be noted that the correlation between different countries was much lower in the 1800s than it was in the 1900s and has increased dramatically during the period of Globalization since 1981.

Figure 6. GFD World, USA, United Kingdom and France Price Indices, 1900 to 2018

  Unfortunately, other World Indices have very little history compared to GFD’s world index; however, we were able to compare the performance of GFD’s World Index (black), the MSCI Developed World Index (blue) and FTSE World Index (green). GFD’s World Index has outperformed the other two indices since 1987, but the overall differences in the performance of the three indices are slight as Figure 7 indicates.

Figure 7. GFD, MSCI and FTSE World Indices 1988 to 2018

Total Returns

Table 1 presents the returns to stocks and bonds over the past 400 years. Data are available for equities beginning in 1601 and for bonds beginning in 1700.

Era	Years	Equities Price	Dividends	Equities TR	Bonds	ERP
Mercantilism	1601-1799	1.12	5.77	6.95
Mercantilism	1700-1799	0.1	4.95	5.05	4.14	0.87
Free Trade	1800-1914	1.79	4.46	6.33	5.25	1.03
Regulation	1914-1981	3.68	2.72	6.51	3.38	3.02
Globalization	1981-	7.28	2.52	9.98	8.04	1.79
All Equities	1601-	2.25	4.62	6.98
Equities & Bonds	1700-	2.38	3.86	6.34	4.81	1.46

Between 1601 and 2018, stocks had capital gains of 2.25% per year, paid dividends of 4.62% and provided a total return of 6.98%. Between 1700 and 2018, stocks had annual capital gains of 2.38%, dividends of 3.86% and a total return of 6.34%. Bonds returned 4.81% per annum which makes the equity risk premium 1.46% over the past 318 years. Changes in the Equity Risk Premium can be explained by changes in the relative risk of stocks and bonds over time. During the period of Mercantilism both government bonds and the mercantilist monopolies were managed by the government, so there was little difference in the risk profile of stocks and bonds. Consequently, the equity risk premium was lowest in the period of mercantilism. The equity risk premium was at its highest during the period of government regulation between 1914 and 1981 when Keynesian policies influenced interest rates and markets through regulation and nationalization. Since 1981, declining interest rates have generated high returns to bonds closing the gap between the returns to stocks and bonds. Since financial repression has pushed down interest rates in Europe and the United States over the past ten years, the equity risk premium is likely to grow in the future. Returns varied greatly during the four eras. The past 37 years of globalization have provided the highest capital gains at 7.28%. a dividend yield of 2.52% and a total return of 9.98%. Rising taxes have favored capital gains over dividends during the twentieth century. The Equity risk premium has generally risen over time, rising from 0.87% in the 1700s to 3.02% during the period of regulation and 1.79% during the period of globalization. Era Years Inflation Equities Price Equities TR Bonds Mercantilism 1601-1799 0.33 0.79 6.6 Mercantilism 1700-1799 0.42 -0.32 4.61 3.7 Free Trade 1800-1914 0.37 1.41 5.94 4.86 Regulation 1914-1981 3.27 0.4 3.14 0.11 Globalization 1981- 2.69 4.47 7.1 5.21 All Equities 1601- 1.05 1.19 5.87 Equities & Bonds 1700- 1.31 1.06 4.96 3.45 Table 2. Returns to Stocks and Bonds, Adjusted for Inflation, 1601 to 2018 Table 2 provides total return data adjusted for inflation, using the United Kingdom for inflation from 1601 to 1799 and the United States from 1800 to 2018. After adjusting for inflation, equities provided annual inflation-adjusted capital gains of 1.19% between 1601 and 2018, and a total return of 5.87%. Between 1700 and 2018, bonds provided annual inflation-adjusted returns of 3.45%. There was virtually no inflation between 1601 and 1914. Inflation was highest between 1914 and 1981 and has fallen since then. Adjusting for inflation, returns have been the strongest during the period of globalization since 1981. Returns were markedly lower during the period of Regulation between 1914 and 1981. This particularly affected bonds which barely kept up with inflation. Bonds benefitted from declining interest rates after 1981, but now that interest rates have stabilized at such a low level, future returns to bonds are likely to be lower. Bull and Bear Markets Table 3 provides a list of the global bull and bear markets that have occurred in world stock markets between 1600 and 2018. GFD defines a bull market as a 50% increase in the price of equities and a bear market as a 20% decline in the price of equities. It should be remembered that the data from the 1600s represents the behavior of only one stock, the Dutch East India Co. Overall, there were six bear markets in the 1600s, five bear markets in the 1700s, only two bear markets in the 1800s, seven bear markets in the 1900s and so far, only two bear markets in the 2000s. The correlation in the performance of the underlying markets has increased over time.

Month	Value	Change	Month	Value	Change
12/31/1602	1.000		04/30/1607	1.652	65.15
07/31/1607	1.127	-31.76	06/30/1614	2.054	82.24
12/31/1617	1.121	-45.39	11/30/1622	1.854	65.34
11/08/1625	1.463	-21.12	08/31/1649	5.873	301.56
08/31/1665	3.267	-44.37	08/31/1671	5.510	68.63
06/30/1672	2.903	-47.30	02/28/1688	5.611	93.26
10/09/1696	2.990	-46.71	02/28/1700	8.243	175.66
02/28/1701	5.255	-36.25	04/29/1704	10.860	106.66
03/31/1712	6.522	-39.95	12/31/1719	53.594	721.74
01/29/1762	5.744	-89.28	05/31/1768	10.657	85.53
10/31/1784	6.677	-37.35	03/31/1792	11.621	74.04
05/31/1797	6.813	-41.37	08/31/1845	24.939	266.05
11/30/1848	16.409	-34.20	07/31/1864	78.398	377.77
11/30/1870	36.563	-53.36	8/31/1912	79.837	118.35
7/31/1921	48.041	-39.83	8/31/1929	145.359	202.57
6/30/1932	35.880	-75.32	2/28/1937	106.783	197.61
5/31/1940	64.134	-39.94	5/31/1946	115.191	79.61
9/30/1949	84.830	-26.36	11/30/1968	505.260	495.61
6/30/1970	377.579	-25.27	3/31/1973	670.345	77.54
9/30/1974	384.136	-42.70	12/31/1989	3083.400	702.69
9/30/1990	2309.493	-25.10	3/31/2000	7764.669	236.21
9/30/2002	4096.959	-47.24	10/31/2007	9749.191	137.96
2/28/2009	4290.434	-55.99

Table 3. Global Bull and Bear Markets, 1601 to 2018

It is interesting to note that the market bottom in 1932 was 35% below the market top in 1719. The longest and deepest bear market in world history followed the 1719 Mississippi-South Sea Bubble when the market declined by 89% between 1719 and 1762. The longest bull market occurred between 1791 and 1845, which ended in the railway mania of the 1840s. The 1929 to 1932 decline was the second worst bear market in history, during which the market declined by 75%, primarily because of the large decline in the stock market in the United States. Surprisingly, the most recent bear market in 2007 to 2009 was the third worst bear market in the past 400 years. This also emphasizes how severe the 2008 bear market was and the fact that global bear markets with a decline over 50% are rare events. The bull market leading up to the 1719 peak was the strongest bull market in history with prices rising 721% between 1712 and 1719. The market rose 702% between the market bottom of 1974 and the market top in 1989; however, if you use data from MSCI for their Developed World Index, the market declined 23.7% between August 27, 1987 and October 26, 1987, then rose 50.92% by January 4, 1990, barely qualifying the 1987 to 1990 rise as a separate bull market. If you adjust for inflation, you get different results as well. Inflation reduces the 1949 to 1968 increase from 495% to 302% and reduces the 1974 to 1989 rise from 702% to 222%. Definitions count.  

Conclusion

Global Financial Data was the first company to calculate a world index that preceded MSCI’s World Index. GFD’s original index went back to 1919. Over the past 20 years, GFD has added data from new sources that extend the historical indices for different countries. In addition to this, GFD has collected data on the U.S. and London Stock Exchanges so it could calculate market-cap indices that begin in 1692 for London and 1792 for the United States. We have also calculated indices for the emerging markets that listed in London in the 1800s as well as indices for Russia, Denmark and other countries using data we have collected from those countries. Just as the Standard Statistics Composite succeeded the Dow Jones Industrial Average, the Standard and Poor’s 500 succeeded the Standard Statistics Composite and the Wilshire 5000 succeeded the Standard and Poor’s 500, so GFD’s World Index 2.0 succeeded its original World Index. GFD’s Global Bond Composites have also been revised to match the new Equity indices that GFD provides. Global Financial Data’s World Index 2.0 provides the most complete history of global equity markets ever produced. Since there is virtually no equity history before the advent of the Dutch East India Co. in 1601, it seems unlikely that a world index with more history will ever be produced.

We know that the worst bear market in United States history occurred between 1929 and 1932 when the S&P Composite fell 86%, returning the stock market back to levels it hadn’t seen since the 1800s.  But what is the longest bear market and how long did it last? To answer this question, you have to understand GFD’s definition of a bear market as a 20% decline in the stock market and a bull market as a 50% increase in the stock market.  If the stock market falls by 30%, rises by 40%, then falls by another 30%, that would be treated as a single bear market.  So you could rephrase the question as what is the longest period of time in which the stock market failed to rise by at least 50%? Now that Global Financial Data has calculated its US-100 index that stretches from 1792 until 2019, we can answer that question.  The answer is 51 years going from the establishment of the stock market in Philadelphia in 1792 when the Bank of the United States (BUS) came into existence until the 1843 market bottom after the Panic of 1837.  During that period of time, the stock market lost over two-thirds of its value.  The only bear market with a larger decline was the bear market of the Great Depression mentioned above.  

Banks, Insurance Companies and the 51-Year Bear Market

You have to remember that during the first half of the 1800s, most of the stocks that traded in the United States were bank and insurance companies and most of the return to stocks came in the form of dividends.  Between 1792 and 1843, stocks on average lost 1% per annum which compounded to a 66% loss over the 51-year period as is illustrated in Figure 1.  However, if the dividends stocks paid had been reinvested, the return would have been positive with $100 growing to $690, not declining to $33. This provided a gross return of 3.86% per annum, not a loss of 1% per annum. It should also be remembered that two stocks, the First and Second Banks of the United States were by far the largest companies in the United States during those 50 years.  The Bank of the United States represented over 80% of the stock market capitalization in 1792 and at least 20% of the total stock market capitalization until 1843.  The First Bank of the United States rose to $600 after shares were issued, then slowly declined in value to its $400 par by 1815. Similarly, the Second Bank of the United States jumped in price to $150 when shares were first issued, then traded between $100 and $125 until President Andrew Jackson failed to renew its charter in 1836. The bank went private, but failed and the stock collapsed in price along with the rest of the stock market after the Panic of 1837. Until the advent of railroads in the 1830s, the stock market was made up almost exclusively of state-chartered bank and insurance companies.  Most of the banks had a single office in Boston, New York, or Philadelphia with little hope of growth.  If the bank or insurance company made a profit, it was paid out in dividends to shareholders, not reinvested for expansion. During a panic, as in 1819 or 1837, some banks went bankrupt, driving the index down. Between 1792 and 1843, there were two Panics that hit the United States in 1819 and in 1837, both of which drove the market down.  After the United States failed to recharter the First BUS, the United States encouraged banks to lend money during the War of 1812.  After the Second Bank of the United States was chartered in 1816, it began lending money freely, but in the summer of 1818, the Bank initiated a sharp credit contraction.  The BUS began rejecting state-chartered banknotes in August 1818 and in October 1818, the US Treasury demanded a transfer of $2 million from the BUS to redeem bonds on the Louisiana Purchase.  The price of cotton fell 25% in one day in January 1819 and the Panic was on. Between June 1818 and June 1819, the US-100 index fell by 25%. Stocks recovered modestly in the 1820s and 1830s, moving back to the level they had been at in 1818. But the economy grew too quickly. States such as Mississippi issued bonds in London, and cotton exports began rising, bringing silver into the United States promoting economic growth. Meanwhile, the United States expanded westward into new territories and states leading to land speculation and higher prices.  The Bank of England decided to raise interest rates in 1836 to increase its monetary reserves, and New York banks followed suite in early 1837.  The price of cotton fell by 25% in February and March of 1837.  The Specie Circular was issued in 1836 requiring all land purchases to be paid for in specie, not in banknotes, putting a brake on rising real estate prices.  The Deposit and Distribution Act of 1836 put federal funds in western banks, reducing deposits in money center banks in New York and Philadelphia.   When Martin Van Buren became President in March 1837, he refused to provide emergency relief or increase federal spending to slow the downturn leading to a general decline in the American economy that persisted until 1843. In the 1830s, Americans began building the railroads that would eventually crisscross the nation.  The Baltimore and Ohio was founded in 1828 and other railroads began popping in New England and along the Atlantic seaboard. The railroads pulled the American economy out of its recession, and the United States enjoyed growth until the Panic of 1857 led to the next recession.  

The Longest and Mildest Bear Market?

The first bear market in the United States was as much a factor of the nature of the stock market as anything else.  Two Panics in 1819 and 1837 drove the stock market down, but until the railroads came along, there were few growth opportunities that could push the market up into a bull market.   Small banks and insurance companies that had little prospect for growth dominated the American economy.  Profitable banks simply paid out dividends to shareholders while unprofitable banks collapsed.  The result was an overall decline in the price of banks of about 1% per annum, but with banks paying dividends that averaged 5%, investors still received a 4% total return on average. While the recovery from the Panics of 1819 and 1837 were mild, the recovery from the Panics of 1857, 1873 and 1893 were sharp as Figure 1 illustrates. After 1840, manufacturing companies grew up around Boston and railroads were built to connect American cities to each other.  At that point, the regular pattern of alternating bull and bear markets began and continues to this day.  By our count, there were four bear markets in the 1800s, twelve in the 1900s and two, so far in the 2000s.  How many more bear markets will occur before the century ends we do not know, but we can guarantee you that no 50-year bear market is likely to ever occur in the United States again.

Global Financial Data has calculated a 100-share index that is more comprehensive than existing long-term indices of the United States stock market.  GFD has collected historical data on U.S. shares from 1791 until 2017 and is using this database to calculate a more representative index of U.S. shares than is currently available. The GFD-100 Index is superior to existing indices for three reasons.  First, the index is capitalization weighted from its beginning in 1791 until 2019.  Second, the selection of stocks is based upon all shares that were traded on U.S. exchanges and over-the-counter. The selection of shares is not limited to the New York Stock Exchange (NYSE), but includes shares from regional exchanges and over-the-counter markets. Third, the index includes finance stocks throughout its history.  Finance shares were excluded from the S&P 500 Composite until July 1, 1976 when the composition of the S&P 500 was changed from 425 Industrials, 60 Utilities and 15 Rail shares (adopted in March 1957) to 400 Industrials, 40 Utilities, 20 Transportation and 40 Finance stocks. Few people realize that bank and insurance stocks were excluded from any major United States stock index until 1976.  Although bank and finance stocks mostly traded over-the-counter before the 1970s, finance stocks represented between 10% and 20% of the overall capitalization of the stock market before 1976. Bank and insurance companies were excluded because consistent price quotes were not available and finance stocks were not as liquid as the shares traded on exchanges. The exclusion of over-the-counter shares was not limited to banks and insurance companies. Standard Oil and its subsidiaries also traded over-the-counter and were excluded from stock market indices until they moved onto the New York Stock Exchange. Nevertheless, people did invest in bank and insurance stocks, and in the Standard Oil companies, and their exclusion creates biases in the historical calculations of stock market indices. Existing calculations of long-term stock market returns in the United States are based upon four primary sources: Smith and Cole (1803-1862), Macaulay (1857-1871) Cowles (1871-1928) and Standard and Poor’s (1928-2017). Unfortunately, these indices have major flaws in them that create biases that researchers have tolerated until now because no one has ever collected historical data on U.S. share prices, corporate actions (dividends and splits) and shares outstanding so accurate price and return indices could be calculated. The current S&P Composite includes data from the Cowles Indices from 1871 until 1927, the 90-share daily S&P Index from January 1928 until February 1957, the 500-share composite that excludes finance stocks until July 1976 and the all-sector 500-share index since July 1, 1976. Global Financial Data has collected data on all major United States exchanges going back to 1791 as well as data on over-the-counter shares since 1865.  The data includes not only share price data, but information on corporate actions (dividends and splits) as well as shares outstanding.  These data sources enable us to calculate cap-weighted price and return indices for the United States that accurately reflect what an investment in the 100 largest stocks each year would have produced for investors. GFD set up criteria for determining which stocks are included or excluded from its indices.  GFD has followed these rules for inclusion: 1) there had to be at least 9 observations per year, 2) Dividend data have to be available for each stock in order that both price and return indices can be calculated, and 3)  There had to be share outstanding information available so the stock could be included in a capitalization-weighted index. The index includes all shares that met these criteria from 1791 to 1824, the top 50 shares by capitalization are used from 1825 to 1850 and the top 100 shares by capitalization from 1851 to 2017. To choose which companies to include, shares were weighted by capitalization during the first month of each year and included if they were among the 100 largest shares in the United States. It was assumed that the stocks were held for the rest of the year, and in January of the next year, the same selection methodology was used to choose which shares to hold for the coming year.  Each year, the list of the 100 largest companies was recalculated and a new list of stocks was introduced.  For continuity purposes, if a stock missed a year, i.e. the stock was in the top 100 in 1914 and 1916, but not in 1915, the stock was included in the index in 1915 even though this put over 100 stocks in the index. A decade-by-decade comparison of the return to stocks in the GFD-100, bonds in GFD’s U.S. Bond Index, bills in GFD’s US Bill Index and the equity-risk premium is provided below.

Decade	Stock Price	Stock Return	Dividends	Bonds	Cash	Equity Premium
1792-1799	-3.7	2.67	6.61	-0.15	5.75	-2.91
1800-1809	1.35	8.01	6.57	6.03	4.96	2.91
1810-1819	-4.35	1.59	6.21	7.42	4.99	-3.24
1820-1829	0.53	5.82	5.26	5.01	3.66	2.08
1830-1839	-0.95	5	6.01	0.44	4.51	0.47
1840-1849	-0.8	6.12	6.98	6.97	4.94	1.12
1850-1859	-0.58	6.65	7.27	4.67	5.01	1.56
1860-1869	4.62	12.45	7.48	9.28	4.97	7.13
1870-1879	2.04	8.97	6.79	5.52	3.82	4.96
1880-1889	1.19	6.27	5.02	4.16	3.01	7.98
1890-1899	4.05	9.45	5.19	4.57	2.13	2.81
1900-1909	6.25	11.23	4.69	0.76	3.01	7.98
1910-1919	-0.69	5.5	6.23	2.22	2.62	2.81
1920-1929	8.72	14.44	5.26	5.53	3.5	10.57
1930-1939	-3.48	0.5	4.12	6.32	0.27	0.23
1940-1949	3.43	8.21	4.62	2.25	0.58	7.59
1950-1959	13.67	18.3	4.07	0.70	2.16	15.80
1960-1969	3.82	6.83	2.90	1.28	4.4	2.33
1970-1979	2.14	6.12	3.90	4.09	6.71	-0.55
1980-1989	12.94	18.14	4.60	15.54	7.96	9.43
1990-1999	19.78	22.65	2.40	7.20	4.52	17.35
2000-2009	-1.66	0.16	1.85	5.42	2.25	-2.04
2010-2017	7.67	10.06	2.22	3.67	0.21	9.83
Average	3.30	8.48	5.06	4.73	3.74	4.60

  Although the overall returns between 1870 and 2017 do not differ significantly between the GFD-100 and Cowles/S&P Composite, there are several advantages in using the GFD-100 as the benchmark for long-term historical data for the United States stock market rather than the Cowles/S&P Composite. 1.     The GFD-100 uses shares that traded on all United States exchanges and over-the-counter from 1791 until 2017. The Cowles/S&P Composite is limited to the New York Stock Exchange before 1972.  Finance companies that traded OTC and companies such as Standard Oil which traded OTC for several decades before moving to the NYSE are included in the GFD-100, but excluded from Cowles/S&P. 2.    The GFD-100 uses shares from all sectors, including finance, from 1791 until 2019.  The Cowles/S&P Composite only includes finance shares beginning in 1976 and ignores the finance sector before 1976. 3.    The GFD-100 includes accurate data on dividends from 1791 to 2019.  The Cowles/S&P Composite only calculated dividends from 1871 until 2017.  There is no inclusion of dividends before 1871 in the Cowles/S&P Composite because no data on dividends were collected. Consequently, existing indices are missing 80 years of dividend data. 4.    The GFD-100 is capitalization weighted from 1791 until 2019.  The Cowles/S&P is cap-weighted from 1871 until 2019 and includes no capitalization weighting before 1871. 5.    The Smith and Cole bank indices that cover the period from 1802 until 1845 suffer from survivorship bias.  Banks were chosen for the indices based upon their longevity, not on their size or liquidity. The GFD-100 components are chosen based upon their market capitalization.  The largest companies are chosen during each January and are “held” in the portfolio for the rest of the year when a new portfolio is organized for the coming year. 6.    The Smith and Cole indices are based upon a very limited population of six to eighteen companies per year from 1802 until 1862.  The GFD-100 includes 50 companies from 1825 until 1850 and 100 companies from 1851 using a broader population of shares. 7.    The GFD-100 uses a consistent methodology from 1791 until 2019.  The Cole and Smith/Macaulay/Cowles/S&P Index use different methodologies.  The data that are used to put together the composite are collected from four different sources and chain-linked together in an uncertain pattern.  During the periods of time when different indices exist, choosing different indices generates different rates of return. Overall, the GFD-100 provides a superior benchmark stock index.  Because of its greater accuracy, we would encourage financial historians to use the GFD-100 for their analysis of long-term trends in the stock market in the United States.

The Wilshire 5000 is the broadest index in the United States covering every stock that is listed on the New York Stock Exchange, NASDAQ and the NYSE AMEX.  When the Index was launched back in 1974, the index included about 5000 stocks, hence the name.  The Wilshire 5000 was never limited to 5000 stocks, but includes every stock listed on the three exchanges regardless of the total number of companies. Wilshire also created the Wilshire 4500, which includes all of the stocks that are listed on the three U.S. exchanges excluding the stocks in the S&P 500 as well as the Wilshire 2500, which includes the 2500 largest companies.   Wilshire’s Large Cap Index includes the top 750 stocks by capitalization while the Small Cap Index includes the 1750 stocks after the first 750. The Micro-Cap Index includes all stocks included in the Wilshire 5000 that are not included in the Wilshire 2500.  

Growth in the Wilshire 5000

As the stock market boomed in the 1990s, the Wilshire 5000 grew in size and reached its maximum membership on July 31, 1998 when 7,562 companies were included in the index.  Thence, membership has shrunk, declining back to 5000 on December 29, 2005. Since then, the Wilshire 5000 has included less than 5000 companies. The Wilshire 5000 Full Cap Index calculates the value of all of the shares listed in the United States in billions of dollars.  The index was at 28,552.5 on February 15, 2019 meaning that the value of all the common stocks listed in the United States was $28,552.5 billion. The index reached $30 trillion in September 2018 before the current sell off.  The index has data going back to December 1970 when the total capitalization of the US Stock market was $830 billion, though this sank to a low of $550 billion in September 1974. GFD has used its own calculations of all the stocks listed in the United States to extend the Wilshire 5000 back to 1792. So to answer the question, how many stocks are in the Wilshire 5000? On June 30, 2018, there were 3,486 companies.  This means that the number of companies that are included in the Wilshire 5000 has shrunk by 54% Since July 1998.  Figure 1 illustrates the performance of the Wilshire 5000 since 1970.  The index showed strong growth between 1975 and 1999, but slower growth since then.

Large Caps vs. Small Caps

It is also instructive to compare the performance of the S&P 500 Total Return Index with the Wilshire 5000 Total Market Index, since both are total return indices.  This comparison provides us with the best comparison of the performance of large cap and small cap stocks that is available. If the S&P 500 stocks (large caps) outperform the rest of the market, then the relative index rises, if the rest of the stocks (small caps) outperform, it falls.  As Figure 2. Illustrates, the S&P 500 peaked relative to the rest of the market in 1975, declined until 1983, then began a stead rise relative to the rest of the market until 2001.  Between 2001 and 2014, small caps outperformed the S&P 500, but during the past 5 years, the S&P 500 has been gaining strength relative to the rest of the market.

The Wilshire/Russell 3000?

The number of stocks that are listed in the United States continues to decline. Because of the regulatory cost of listing on public exchanges, and the willingness of venture capitalists to invest in private companies, fewer and fewer companies are going public, and the number of publicly-traded companies is declining.  The Russell 3000 may soon face the fate of the Wilshire 5000, being forced to include fewer companies than its name suggests.  At some point in the near future, there may be fewer than 3000 companies listed in the United States and at that point, the Wilshire 5000 and the Russell 3000 will include the same number of companies.  When that happens, we will let you know.