What The Markets Tell Us About Future Economic Growth?
Examining the historical record to see, if any of bond, stock, and real estate markets have provided a reliable signal for future economic activity.
Forecasting Long-Term Equity Returns
Sep 3, 2018
A Comparison of Popular Methodologies
Despite considerable research on the topic, there remains a wide range of views on how best to generate the long-term equity return forecasts that CIOs use for their asset allocation decisions. To analyze this issue, our IAS team evaluates the out-of-sample historical performance of two common approaches, or methodologies, for estimating 10-year equity market returns:
- A regression methodology using CAPE (the cyclically adjusted price-to-earnings ratio)
- A more traditional “building block” (BBA) approach
Which approach has had a better track record? Has either approach produced better forecasts than simply using a long historical average return as a predictor of future returns?
More Insights from IAS
When the Dust Flies
Examining how volatility events and post-peak events, across a 68-year span, affect asset class performance.
The Impact of Market Conditions on Active Equity Management
The challenges and opportunities for active investors, particularly as they begin to look beyond the current benign environment.