AQR examines how today’s low interest rate environment shapes expected returns across asset classes, arguing that rates are a dominant driver of long-term investment outcomes. The paper challenges the idea that equities can maintain historical return levels, noting that starting yields near 1% have historically aligned with materially lower forward returns.
It’s Not a Bound; It’s an Opinion
AQR
Research
12 Pages
Key Takeaways
Lower Return Outlook: With bond yields near 1%, expected 10-year stock returns fall to roughly 3–5%, well below historical averages.
Valuation Headwinds Persist: Elevated equity valuations imply future returns could be 2–4% lower than long-term norms based on starting multiples.
Diversification Still Matters: Even with bonds yielding ~1–2%, multi-asset portfolios reduce volatility by up to 30% versus equities alone.
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