Historical Statistical Approaches Historical statistical approaches involve the collection of data from past returns and using them to extrapolate future performance. Using a pure-historical returns approach to forecast equity market returns is complicated because equities have a high standard deviation…

The history of emerging and/or frontier market government borrowers began slowly with only a few nations. It has since grown into a large and distinct market. Numerous crises from Latin America, Asia, and Europe have plagued the market throughout its…

To inform the asset allocation process and adequately set client expectations, analysts must be able to create realistic and defensible forecasts for all asset classes, including fixed income. The main ways to approach forecasting fixed-income returns include: Discounted cash flow:…

How do the dealings of one country affect the economies of other countries across the globe? Most countries are linked via a global economic network of trade. Countries with more extensive, robust, and diverse economies tend to be less influenced…

The shape of the yield curve is often cited as a leading reliable economic indicator. The yield curve maps the relationship between interest rates and the maturity of fixed-income investments on a graph. On the horizontal axis is time or…

Monetary Policy To smooth out extreme inflation or deflation, central banks act as mediators. It is generally accepted that expansionary policies are less effective than those that are restrictive. In other words, it’s easier for governmental authorities to cool down…

Until the early 20th century, the money supply was primarily dictated by the supply of gold and silver backing up bank deposits. This made periods of both deflation and inflation expected. Now that fiat currencies are backed by the faith…

The business cycle refers to variations of economic productivity–often measured in terms of GDP–around its long-term trend rate. It is this long-term trend rate that serves as an anchor for forecasting business environments. This is because the economy cannot sustainably…

Economic forecasting typically falls under one of three distinct approaches: Econometric modeling. Economic indicators. Checklists. Econometric Modeling Econometric modeling is the use of statistical methods to map out relationships among economic variables. Models may range from simple to extensive and…

The expected trend growth rate is an all-important element in developing capital market expectations. Its primary use is in developing expected returns for asset classes. In addition, it informs potential currency movements and government policy. Critical considerations of economic trend…