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Forecasting medium-term returns and testing their value in constructing a simple portfolio

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  • Alastair Baker

    (Schroders Investment Management)

Abstract

This article examines the process behind generating robust medium-term (10 year) forecasts and tests their use in portfolio construction. The article revisits Bogle's (1991a, b and 1995) Occam's razor approach to forecasting. It examines why it has performed well and discusses its most recent performance. The article uses the Bogle model to test the portfolio construction process used by different actors in the asset management industry. Finally, this article examines alternative methods for forecasting the valuation component of medium-term returns. It discusses why considering the level of inflation or inflation volatility may provide an alternative to the 30-year average suggested by Bogle (1991b).

Suggested Citation

  • Alastair Baker, 2011. "Forecasting medium-term returns and testing their value in constructing a simple portfolio," Journal of Asset Management, Palgrave Macmillan, vol. 12(4), pages 235-247, September.
    • Handle: RePEc:pal:assmgt:v:12:y:2011:i:4:d:10.1057_jam.2011.5
    DOI: 10.1057/jam.2011.5
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    References listed on IDEAS

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    1. Christina D. Romer & David H. Romer, 1997. "Reducing Inflation: Motivation and Strategy," NBER Books, National Bureau of Economic Research, Inc, number rome97-1, February.
    2. Robert J. Shiller, 1997. "Why Do People Dislike Inflation?," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 13-70, National Bureau of Economic Research, Inc.
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