John and Anna are analysts at XYZ Bank. Both have been asked to predict ongoing Equities returns. Anna used returns over the last two years and found an average return of zero. John used returns over the last 10 years and found an average return of 5%. Assume that the world was in a growth phase for 8 years and then in a recession for the most recent 2 years.
a. Critically discuss John and Anna’s predictions and make suggestions for how to improve them.
b. You believe that the recession will continue into next year. Provide an expectation for equities return under this assumption. Justify your reasons.