Ma RMarshall BRNguyen NHVisaltanachoti N2024-07-092024-07-092024-07-01Ma R, Marshall BR, Nguyen NH, Visaltanachoti N. (2024). Estimating Long-Term Expected Returns. Financial Analysts Journal. Latest articles. (pp. 1-21).0015-198Xhttps://mro.massey.ac.nz/handle/10179/70121Estimating long-term expected returns as accurately as possible is of critical importance. Researchers typically base their estimates on yield and growth, valuation, or a combined yield, growth, and valuation (“three-component”) framework. We run a horse race of the abilities of different frameworks and input proxies within each framework to estimate 10- and 20-year out-of-sample returns. The three-component model based on the TRCAPE valuation proxy outperforms estimates based on historical mean benchmark returns, with mean square error improvements exceeding 30%. Using this approach in asset allocation decisions results in an improvement in Sharpe ratios of more than 50%.(c) 2024 The Author/sCC BY-NC-ND 4.0https://creativecommons.org/licenses/by-nc-nd/4.0/asset allocationlong-term expected returnsthree-component modelvaluationJournal article10.1080/0015198X.2024.23587371938-3312journal-article1-21