Terminal Wealth Forecast Bias worksheet


This worksheet is based on the table reported in the Jacquier, Kane, and Marcus article, “Geometric or Arithmetic Mean: A Reconsideration.”

The table illustrates how upwardly biased the Arithmetic Mean return is to the unbiased return, depending on volatility, the length of the sample period, and the length of the forecast horizon. Those independent variables appear in blue; edit them as you wish.

Source: Geometric or Arithmetic Mean: A Reconsideration
Financial Analysts Journal

Eric Jacquier, Alex Kane, and Alan J. Marcus
November/December 2003, Vol. 59, No. 6: 46-53
(doi: 10.2469/faj.v59.n6.2574)

For more background on this topic, see Modeling Expected Returns: The Future Is Not What It Used to Be

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