Is Our Industry Intellectually Lazy?

Robert D. Arnott

Financial Analysts Journal, 2004, vol. 60, issue 1, 6-8

Abstract: Part of the mission of the Financial Analysts Journal is to stimulate creative thinking about financial analysis, including investment valuation, risk management, fiduciary issues, and asset allocation. As part of that mission, the editor raises questions about and calls for investigation of the following practices: Why does our industry forecast aggregate corporate earnings growth rates that are faster than sustainable GDP growth? Why do we not question pension return assumptions? Why accept rising pension return expectations in a rising market? Why allow actuarial or accounting assumptions to drive investment practice? Why readily accept return forecasts based on extrapolating the past? Why not “normalize” return assumptions? Why is the topic of expensing management stock options controversial? When various “earnings” figures diverge, why not ask why? Why is a negative equity risk premium considered shocking? Why is our industry often surprised and distrustful when empirical tests fail to support accepted dogma?

Date: 2004
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DOI: 10.2469/faj.v60.n1.2585

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