Long-Horizon Predictability: A Cautionary Tale

Jacob Boudoukh, Ronen Israel and Matthew Richardson

Financial Analysts Journal, 2019, vol. 75, issue 1, 17-30

Abstract: Long-horizon return regressions effectively have small sample sizes. Using overlapping long-horizon returns provides only marginal benefit. Adjustments for overlapping observations have greatly overstated t-statistics. The evidence from regressions at multiple horizons is often misinterpreted. As a result, much less statistical evidence of long-horizon return predictability exists than is implied by research, which casts doubt on claims about forecasts based on stock market valuations and factor timing.Disclosure: AQR Capital Management is a global investment management firm that may or may not apply investment techniques or methods of analysis similar to those described herein. The views expressed here are those of the authors and not necessarily those of AQR.Editor’s NoteSubmitted 2 April 2018Accepted 1 August 2018 by Stephen J. Brown

Date: 2019
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DOI: 10.1080/0015198X.2018.1547056

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