HomeCFACFA Level 3CFA Level 3 | Capital Market Expectations: Singer-Terhaar Model

CFA Level 3 | Capital Market Expectations: Singer-Terhaar Model

  • May 15, 2020
  • Posted by: Fabian Moa, CFA, FRM, CTP, AFM, FMVA, FSA Credential
  • Categories: CFA, CFA Level 3
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CFA Level 3

Topic: Capital Market Expectations

Reading: Capital Market Expectations, Part 2: Forecasting Asset Class Returns

 

In this video, we cover the Singer-Terhaar Model, that is used to estimate the expected return and/or the risk premium of an asset class.

Under the scenario of complete segmentation, the correlation is set equals to 1.

The risk premium of the asset class is the weighted average risk premium using the degree of integration/segmentation. The risk premium should also include illiquidity premium, if any. To get the expected return of the asset class, add the risk-free rate of return to the risk premium.

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