AQR examines how “objective” valuation-based models—such as equity yields or cyclically adjusted metrics—predict multi-year U.S. equity returns. The paper concludes that valuation or yield-based indicators provide a reasonable starting point for expected return estimation, but growth-based models often add noise and reduce accuracy.
Equity Market Focus: Objective Expected Returns
AQR
Antti Ilmanen, Thomas Maloney
Research
2 Pages
Key Takeaways
Valuation power: Dividend and earnings yields remain the strongest predictors of multi-year equity returns.
Growth pitfalls: Models incorporating forecasted or historical earnings growth tend to degrade predictive accuracy.
Refined approach: Blending valuation and yield signals improves robustness across market cycles
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