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Capital Market Assumptions for Major Asset Classes


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Capital Market Assumptions for Major Asset Classes

This article updates our estimates of medium-term expected returns for major asset classes, and also includes an analysis exploring the historical accuracy of yield-based return estimates, compared to reasonable alternatives.

How have our return estimates changed since last year?

Most estimates have fallen slightly over the past year
For equities, higher valuations are partly offset by slightly higher growth estimates
Bond return estimates are little changed since last year, with U.S. Treasuries seeing a small reduction due to a flatter yield curve
Credit return estimates are somewhat lower due to tighter spreads

How accurate are yield-based return forecasts?

Using over a century of data, we find that yield-based forecasts have been more accurate than alternative methods for a 10-year horizon. But we also show that 10-year outcomes can stray far from forecasts, and that naïve statistical measures such as correlations may be unreliable guides to predictive power. The results support our view that such estimates are more useful for setting appropriate medium-term expectations than for aggressive tactical allocation decisions.


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The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of AQR Capital Management, LLC, its affiliates or its employees. This information is not intended to, and does not relate specifically to any investment strategy or product that AQR offers. It is being provided merely to provide a framework to assist in the implementation of an investor’s own analysis and an investor’s own view on the topic discussed herein. Past performance is not a guarantee of future results.


Hypothetical performance results have many inherent limitations, some of which, but not all, are described herein. The hypothetical performance shown was derived from the retroactive application of a model developed with the benefit of hindsight.  Hypothetical performance results are presented for illustrative purposes only.


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AQR Capital Management is a global investment management firm, which may or may not apply similar investment techniques or methods of analysis as described herein. The views expressed here are those of the authors and not necessarily those of AQR.