Citing the paper Volatility-induced ﬁnancial growth (2007) by Dempster et al.:
when asset returns are stationary ergodic, their volatility, together with any ﬁxed-mix trading strategy, generates a portfolio growth rate in excess of the individual asset growth rates. As a consequence, even if the growth rates of the individual securities all have mean zero, the value of a ﬁxed-mix portfolio tends to inﬁnity with probability one
Here is the link I am suggesting:
1) The case of equity value: Equity value is a function of the company's assets, i.e. equity is a portfolio of assets. Assume that managers rebalance the investments in companies using a fixed-mix strategy and that transaction costs are subject to the restriction in the above cited paper.
2) The case of a treasury bond: A treasury bond does not hold the properties needed to use this volatility-induced financial growth. There is no underlying asset portfolio which one can rebalance within a treasury bond.
Conclusion: Because managers rebalance asset portfolios the volatility-induced financial growth has assured the magnitude of equity returns above treasury bond returns which lead to the puzzle in the first place.
Does this hold as a viable theory?