SFY - What Are You Expecting For Risk Premia?
A key part of informed decision-making on asset allocation is estimating future risk premia and using those projections to influence weights in the portfolio. The question, of course, is how to estimate premia? There are no easy answers for the simple reason that forecasting the future is complicated. A good way to start, however, is by managing expectations via history. There are many possibilities on this front, including one that's often overlooked: profiling the distribution of historical premia for a preliminary dose of perspective.
As a basic illustration, let's review how three sets of risk