Four Centuries of Return Predictability

Benjamin Golez and Peter Koudijs

No 20814, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We combine annual stock market data for the most important equity markets of the last four centuries: the Netherlands/U.K. (1629-1812), U.K. (1813-1870) and U.S. (1871-2015). We show that dividend yields are stationary and consistently forecast returns. The documented predictability holds for annual and multi-annual horizons and works both in and out-of-sample, providing strong evidence that expected returns in stock markets are time-varying. Much of this variation is related to the business cycle, with expected returns increasing in recessions. We also find that, except for the period after 1945, dividend yields predict dividend growth rates.

JEL-codes: G12 G17 N2 (search for similar items in EconPapers)
Date: 2014-12
New Economics Papers: this item is included in nep-his
Note: AP
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Citations: View citations in EconPapers (7)

Published as Benjamin Golez & Peter Koudijs, 2017. "Four centuries of return predictability," Journal of Financial Economics, .

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