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This week has a great read from Saumil Parikh over at PIMCO who examines in great depth how to forecast stock returns. They create an algorithm including payout adjusted dividend yield + nominal GDP growth + change in profits’ share of GDP + change in CAPE + change in long-term Treasury yields – equity dilution factor.
I was chatting with Saumil earlier this week, and keep an eye out as they will have more to come in the future with forecasts for other asset classes including foreign stocks, fixed income, commodities, and inflation.
From the piece:
Two good charts from the white paper:
Download the full 14 page PDF here:
Forecasting Equity Returns in the New Normal November 2012