Discuss how each of the following forecasting challenges evident in Wuyan’s report and in Tommanson’s comments affects the setting of capital market expectations:

i. Status quo bias ii. Data-mining bias iii. Risk of regime change iv. Misinterpretation of correlation Discuss how each of the following forecasting challenges evident in Wuyan’s report and in Tommanson’s comments affects the setting of capital market expectations:

Jennifer Wuyan is an investment strategist responsible for developing long-term capital market expectations for an investment firm that invests in domestic equities. She presents a report to the firm’s investment committee describing the statistical model used to formulate capital market expectations, which is based on a dividend discount method. In the report, she notes that in developing the model, she researched the historical data seeking to identify the relevant variables and determined the best source of data for the model. She also notes her interpretation of the current economic and market environment.

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Status quo bias Data-mining bias Risk of regime change Misinterpretation of correlation