The Long Run is Lying to You

AQR

Cliff Asness

Research

16 Pages

AQR challenges the idea that long run averages are reliable guides for investors, arguing that starting valuations and economic conditions heavily distort realized outcomes over practical investment horizons. The paper highlights that even 10–20 year periods can deliver results far from historical norms, with equity returns varying by several percentage points depending on entry conditions.

Key Takeaways

Valuation Drives Outcomes: Starting Shiller CAPE levels explain roughly 40% of 10-year real equity return variation across historical periods.
Long Run Variability: U.S. equity real returns ranged from about -2% to +15% annually across rolling 20-year periods since 1900.
Mean Reversion Limits: Even over 10 years, valuation-based forecasts showed error bands of roughly ±5%, challenging reliance on historical averages.
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