- Explain what it is and what you found beneficial about the way the investment return data were presented.
Financial information both on the money markets and prevailing economic conditions such as interest rates should regularly be made available to fund managers and investment management professionals in order to make timely decision that will reduce the chances of going into losses. Callan charts are beneficial in providing such information. They provide crucial information on the returns of various asset classes such as bonds and stocks. This will enable investment firms to diversify their portfolio to minimize volatility in the financial markets that lead to loss of capital. Additionally, the investors will be able make decisions on whether to put their money in growth assets classes or the ones that are valuable. Callan charts provide broad information from a wide global perspective on the financial markets. Hence, investors will make decisions on whether to allocate capital to emerging equity markets or international equity markets such as the US.
- Based on looking at a Callan chart, what might you conclude about the practice of using past returns to predict future returns?
Past returns of equity markets play a crucial role in providing forecasts for the markets in future. They normally indicate a pattern through which the equity markets will perform in future. Investment companies nowadays high IT consulting companies such as Accenture and IBM to provide analytics of how the markets will perform in future using highly specialized machine learning algorithms such as Support Vector Machines (SVMs). Financial markets such as stock exchanges generate enormous amounts of data known as “Big Data” which may be tapped into to study how the markets will perform in future. This has become a common practice in the industry leading to accuracy in prediction of future performances of equity markets.