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Nematrian Reference Library

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Northfield (2004)Estimating Returns for Asset Allocationhere

First slide

"Optimum portfolio weights are very sensitive to return expectations. Small changes in expected returns lead to large weight changes.

Historic returns are often used, but they are not usually good predictors of future returns. Domestic Equity returns are upwardly biased by an expansion of P/E ratios. Bond returns are upwardly biased by decreases in interest rates.Active returns are upwardly biased because of survivorship bias, particularly with hedge funds."


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