How to Better Estimate Long-Term Expected Returns

Niels Bohr, the Nobel laureate in Physics, famously said, “Prediction is very difficult, especially if it’s about the future.”. In the domain of financial analysis, estimating the long-run returns of equities over a horizon of 10 to 20 years presents a formidable challenge. Despite the significant challenges in accurately forecasting market trends and economic conditions over such lengthy periods, this task remains important for investors, portfolio managers, and policymakers, as some of them often depend on these forecasts to develop effective investment strategies and policy frameworks. Input from today’s reviewed paper provides valuable insights on how to improve these predictions.

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