The framework for developing CME provides a disciplined, structured process to produce consistent and well-reasoned projections. The seven steps are:
Specify Expectations and Time Horizon
Define which asset classes and investment horizons projections are needed for. The universe should reflect decision-making needs but remain as concise as possible.
Research the Historical Record
Analyze historical data to understand asset behavior and identify return drivers. This informs possible future performance ranges.
Specify Method(s) or Model(s)
Choose and justify forecasting methods or models suitable for the time horizon and asset class. Ensure they are theoretically sound and practical.
Determine Best Information Sources
Identify and evaluate data sources for accuracy, timeliness, and relevance. Select data frequency appropriate to the forecast horizon.
Interpret the Current Environment
Apply data and models to evaluate the present investment context, maintaining consistency across assumptions and methods.
Provide and Document Expectations
Deliver forecasts with supporting reasoning and assumptions, ensuring internal consistency across all assets and horizons.
Monitor Outcomes and Refine the Process
Compare actual results with expectations to improve future forecasts. Use both quantitative and qualitative feedback to refine the methodology.
This framework ensures that CME are objective, efficient, and internally consistent over time and across asset classes.