AQR examines long-run U.S. equity returns and the pitfalls of relying on historical averages. Antti Ilmanen emphasizes that with starting yields at record lows and valuation-driven returns accounting for much past performance, future equity returns are likely to be significantly lower.
Equity Market Focus: Interrogating the Historical Data
AQR
Antti Ilmanen
Research
12 Pages
Key Takeaways
Historical average isn't reliable: Long-run returns (~7% real) depend on stable yields and unbiased samples, which currently aren't present.
Yield drives future returns: Lower starting equity yields suggest reduced income potential compared to historical norms.
Valuation fluctuations dominate: Equity returns have been driven more by valuation changes than by earnings growth per se.
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