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03/08/2005: "Updated index for: Equity returns"

Projecting real equity returns to a personal time horizon with a personal required certainty
This is what the 'Lambda' model does. First developed by Chris Drew and Stuart Fowler in 1999 to drive an online investment service (Fifth Freedom), it has always been unusual in modeling real equity total returns directly, independent of the yield curve and without modeling underlying economic drivers (as most stochastic asset models do). Does it produce better forecasts of equity risk and return? Yes, claim its creators. But to translate those into better forecasts of portfolio risk and return requires the use of a risk-free asset rather than the usual 'optimised' combination of lots of different risky assets.

The behaviour of real equity prices ties in with other areas of the topical index, including 'Asset allocation' and 'Accountants v actuaries'. Comparisons between real equity prices and real house prices are also made in 'Property myths'.