The expected risk premium for the Global Market Index (GMI) rebounded to an annualized 4.5% in January after slipping to 4.2% at the end of 2018. Today's revised estimate for GMI (an unmanaged market value-weighted portfolio that holds all the major asset classes except cash) represents the ex ante premium over the projected "risk-free" rate for the long run.
Adjusting for short-term momentum and medium-term mean reversion factors (defined below) generates a fractionally lower ex ante risk premium for GMI: an annualized 4.4% forecast.
The projections remain far below GMI's historical performance for the