Sobering 10-Year Market Predictions from CFOs

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Sobering 10-Year Market Predictions from CFOs

By | 2017-08-18T16:56:49+00:00 June 15th, 2015|Tactical Asset Allocation Research, $SPY, Macroeconomics Research|Comments Off on Sobering 10-Year Market Predictions from CFOs

The Graham-Harvey survey is complete and the expectations of CFOs are available for review.

As the figure below highlights, expected returns on the S&P 500 have been gradually decreasing over time.

As of Q1 2015, the 10-year bond yield was projected at 2.12%.

The projected 10-year annualized return was 6.63% (2.12% 10-year + 4.51 equity premium).


The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged, do not reflect management or trading fees, and one cannot invest directly in an index. Additional information regarding the construction of these results is available upon request.


How in the world are the endowments and pensions going to hit their 8%+ bogies?

Learn more about equity return forecasting here.

Paper abstract below:

The Equity Risk Premium in 2015

We analyze the history of the equity risk premium from surveys of U.S. Chief Financial Officers (CFOs) conducted every quarter from June 2000 to March 2015. The risk premium is the expected 10-year S&P 500 return relative to a 10-year U.S. Treasury bond yield. We show that the equity risk premium has increased more than 50 basis points from the levels observed in 2014. The current 10-year risk premium is 4.51%. Similarly, measures of risk such as investor disagreement and perceptions of volatility have increased. Interestingly, the increased premium and risk are not reflected in market-based measures of risk, such as the VIX and credit spreads. We also link our survey results to measures survey-based measures of the weighted average cost of capital and investment hurdle rates. The hurdle rates are significantly higher than the cost of capital implied by the market risk premium.

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About the Author:

After serving as a Captain in the United States Marine Corps, Dr. Gray earned a PhD, and worked as a finance professor at Drexel University. Dr. Gray’s interest in bridging the research gap between academia and industry led him to found Alpha Architect, an asset management that delivers affordable active exposures for tax-sensitive investors. Dr. Gray has published four books and a number of academic articles. Wes is a regular contributor to multiple industry outlets, to include the following: Wall Street Journal, Forbes,, and the CFA Institute. Dr. Gray earned an MBA and a PhD in finance from the University of Chicago and graduated magna cum laude with a BS from The Wharton School of the University of Pennsylvania.