Bridge over ocean
30 November 2018 Financial Analysts Journal Volume 75, Issue 1

Long-Horizon Predictability: A Cautionary Tale

  1. Jacob Boudoukh
  2. Ronen Israel
  3. Matthew Richardson

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.

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