GMO's Predictions: A Useful Guide for Investors?

Abstract

How successful are stock market predictions? We explore one set of easily accessible predictions by a respected firm, GMO. Specifically, we evaluate how effective GMO’s predicted stock returns have been in guiding investors from June 2000 through March 2014. We find that the predictions have been useful, although based on past history investing solely in the top one or two performing indexes would have been an inferior strategy for maximizing return to investing equal amounts in the three indexes with the top predicted returns.