This neat trick makes it simpler to forecast a decade of stock-market returns
Source: https://engineering.nyu.edu/news/neat-trick-makes-it-simpler-forecast-decade-stock-market-returns Parent: https://engineering.nyu.edu/academics/departments/finance-and-risk-engineering
This neat trick makes it simpler to forecast a decade of stock-market returns
Published:
February 26, 2025
From
Marketwatch
Adjunct Professor Thomas Phillips and Adam Kobor, director of investments for NYU’s endowment, have developed an easier method to forecast stock market performance. Unlike the complex CAPE ratio that requires 10 years of inflation-adjusted data, their approach simply removes the worst quarter from a single year's earnings and skips inflation adjustments entirely. When combined with a sales-based measurement, their method predicts future returns slightly better than traditional models. Using recent data, they forecast 4.1% annual returns for the next decade - lower than the standard model's 5.5% prediction but still beating inflation.
Researchers
Thomas K. Philips, Ph.D.
Adjunct Professor