Four centuries of return predictability

Benjamin Golez, Peter Koudijs*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

39 Citations (Scopus)

Abstract

We combine annual stock market data for the most important equity markets of the last four centuries: the Netherlands and UK (1629–1812), UK (1813–1870), and US (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. In part, 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.

Original languageEnglish
Pages (from-to)248-263
Number of pages16
JournalJournal of Financial Economics
Volume127
Issue number2
DOIs
Publication statusPublished - Feb 2018
Externally publishedYes

Bibliographical note

Publisher Copyright:
© 2017

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