Using Rates of Return to Forecast Returns
نویسندگان
چکیده
In a recent pilot study, errors in forecasts of future returns showed little differences when arithmetic and geometric mean calculations served as the basis for the projections. Using annual returns on the DJIA and S&P for 1954 to 2007, 1-year-, 5-year-ahead, and 10-year-ahead forecasts were made based on 5-, 10-, 15-, and 20-year histories based on both arithmetic and geometric averages. This study proposes to incorporate short-term treasury securities in the analysis as well, but also to incorporate Blume’s formula (a weighted average of geometric and arithmetic means) into the analysis to assess the efficacy of the forecasts. Forecasts will be compared against the actual returns earned for the period.
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