If you do something similar on bonds it will look the same. The next decade, perhaps 2 decades, are going to be awful for asset returns. This will have profound implications for the industryhttps://twitter.com/SoberLook/status/1460190968683147273 …
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BisphamGreen Retweeted (((The Daily Shot)))
If you do something similar on bonds it will look the same. The next decade, perhaps 2 decades, are going to be awful for asset returns. This will have profound implications for the industryhttps://twitter.com/SoberLook/status/1460190968683147273 …
BisphamGreen added,
is this methodology better than the other "asset are priced for terrible returns" methodology that I've been hearing for my entire career?
The chart above is particularly bad, since it plots 1 point per month for something which is averaged over ten years, giving a false sense of how strong the correlation is. The correct version of the plot should only have seven data points.
Chart on the left - seven data points, statistically insignificant correlation. Chart on the right - each data point replicated 100 times with some noise, statistically significant (but very fake) correlation.pic.twitter.com/etlvFmk4ty
How do you choose which 7 data points?
For example, you can do 10 instances of non-overlapping decades, find the relationship on those 10 instances and take average. For example, one instance would 1950-1960-1970-1980-1990-2000-2010-2020 and the other instance would be 1949-1959-1969-1979-1989-1999-2009-2019.
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