Advertisement

Long-Term Return Expectations

  • Henrik Lumholdt
Chapter

Abstract

How do we formulate expectations for long-term returns on the asset classes involved in the SAA? One approach would be to rely exclusively on the historical record. We will look at this in the first section. Another approach is to base our expectations on more forward-looking indicators such as longer-term macro-fundamentals, models of return and valuations. We will look at how this applies to risk-free government bonds, credit and equities in the subsequent sections.

References

  1. Asness, Clifford S. 2003. “Fight the Fed Model: The Relationship Between Future Returns and Stock and Bond Market Yields”, Journal of Portfolio Management, Fall, 11–24.Google Scholar
  2. Asness, Clifford S. 2012. “An Old Friend: The Stock Market’s Shiller P/E”. AQR Capital.Google Scholar
  3. Bekaert, G., and E. Engstrom. 2010. “Inflation and the Stock Market: Understanding the ‘FED Model”, Journal of Monetary Economics, 57(3), 278–294.CrossRefGoogle Scholar
  4. Bernstein, William J., and Robert D. Arnott. 2003. “Earnings Growth: The Two Percent Dilution”, Financial Analysts Journal, 59(5), 47–55.CrossRefGoogle Scholar
  5. Bogle, John C. 1991a. “Investing in the 1990s”, The Journal of Portfolio Management, 17, 5–14.CrossRefGoogle Scholar
  6. Bogle, John C. 1991b. “Investing in the 1990s: Occam’s Razor Revisited”, The Journal of Portfolio Management, 18, 88–91.CrossRefGoogle Scholar
  7. Bogle, John C., and Michael W. Nolan. 2015. “Occam’s Razor Redux: Establishing Reasonable Expectations for Financial Market Returns”, The Journal of Portfolio Management, 42, 119–134.CrossRefGoogle Scholar
  8. Campbell J. Y., Shiller R. J. 1998. “Valuation Ratios and the Long-Run Stock Market Outlook”, Journal of Portfolio Management, Winter, 11–26.Google Scholar
  9. Dimson, Elroy, Paul Marsh, and Mike Staunton. 2002. “Triumph of the Optimists: 101 Years of Global Investment Returns”. New Jersey: Princeton University Press.CrossRefGoogle Scholar
  10. Estrada, J. 2007. “Investing in the Twenty-First Century: With Occam’s Razor and Bogle’s Wit”, Corporate Finance Review, May/June.Google Scholar
  11. Feinman, J. 2005. “Inflation Illusion and the (Mis)pricing of Assets and Liabilities”, Journal of Investing, Summer, 29–36.Google Scholar
  12. Ferreira, M. A., and P. Santa-Clara. 2011. “Forecasting Stock Market Returns: The Sum of the Parts Is More than the Whole”, Journal of Financial Economics, 100(3), 514–537.CrossRefGoogle Scholar
  13. Holston, Kathryn, Thomas Laubach, and John C. Williams. 2016. “Measuring the Natural Rate of Interest: International Trends and Determinants”, FRB San Francisco Working Paper, December.Google Scholar
  14. Ibbotson, Roger, Roger J. Harrington, and James P. Harrington. 2017. “Stocks, Bonds, Bills and Inflation (SBBI) Yearbook”. Wiley.Google Scholar
  15. Ilmanen, Antti. 2011. “Expected Returns: An Investor’s Guide to Harvesting Market Rewards”. Chichester, UK: John Wiley & Sons.Google Scholar
  16. Klement, Joachim. 2015. “What’s Growth Got to Do with It? Equity Returns and Economic Growth”, Journal of Investing, 24(2), 74–78.CrossRefGoogle Scholar
  17. Litterman, R., and J. Scheinkman 1991. “Common Factors Affecting Bond Returns”, Journal of Fixed Income, 1, 51–61.Google Scholar
  18. Ritter, J. R. 2005. “Economic Growth and Equity Returns”, Pacific-Basin Finance Journal, 13, 489–503.CrossRefGoogle Scholar
  19. Ritter, J. R. 2012. “Is Economic Growth Good for Investors?” Journal of Applied Corporate Finance, 24(3), 8–18.CrossRefGoogle Scholar
  20. Shiller, Robert. 1990. “Market Volatility”. Cambridge, MA: MIT Press.Google Scholar
  21. Siegel, Jeremy. 2014. “Stocks for the Long Run”, 5th edition. New York: McGraw Hill.Google Scholar
  22. Taylor, John B. 1993. “Discretion Versus Policy Rules in Practice”, Carnegie-Rochester Conference Series on Public Policy, 39, 195–214.CrossRefGoogle Scholar
  23. Williams, John C. 2017. “Three Questions on R-star”, FRBSF Economic Letter, February.Google Scholar

Copyright information

© The Author(s) 2018

Authors and Affiliations

  • Henrik Lumholdt
    • 1
  1. 1.Instituto de Empresa Business SchoolMadridSpain

Personalised recommendations