The expected risk premium for the Global Market Index (GMI) ticked lower in November, but remains elevated relative to recent history. Today’s revised estimate is 6.0% annualized, down slightly from the previous forecast.
The forecast is defined as the projected long-run return over the “risk-free” rate, according to a risk-based model (detailed below). GMI is an unmanaged, market-value-weighted portfolio that holds all the major asset classes (except cash) and represents a theoretical benchmark of the optimal portfolio for the average investor with an infinite time horizon. On that basis, GMI is useful as a starting point for research on asset allocation and portfolio design. GMI’s history suggests that this passive benchmark’s performance is competitive with active asset-allocationRead More »