The long-term forecast for the Global Market Index’s (GMI) risk premia ticked higher in May, rising for a second month after a run of declines earlier in the year. The upwardly revised annualized total return estimate for GMI is currently 4.5%, which reflects the index’s long-run projection over the “risk-free” rate, based on a risk-centered model outlined by Professor Bill Sharpe (details below).
Today’s update marks an increase from . Meanwhile, the current 4.5% forecast is unchanged from the
GMI is an unmanaged, market-value-weighted portfolio that holds all the (except cash) and represents a benchmark of the theoretical, optimal portfolio for the average investor with an infinite time horizon. GMI, in short, is a starting point for asset allocation research and portfolio design.
Adjusting for short-term momentum and medium-term mean-reversion factors (defined below) trims GMI’s ex ante premium, slightly, to an annualized 4.4% forecast.