02529cam a22002897 4500001000700000003000500007005001700012008004100029100002100070245012300091260006600214490004200280500001900322520112300341530006101464538007201525538003601597690011201633690005701745690019601802700002501998700002202023710004202045830007702087856003802164856003702202w11841NBER20161211021753.0161211s2005 mau||||fs|||| 000 0 eng d1 aBoudoukh, Jacob.14aThe Myth of Long-Horizon Predictabilityh[electronic resource] /cJacob Boudoukh, Matthew Richardson, Robert Whitelaw. aCambridge, Mass.bNational Bureau of Economic Researchc2005.1 aNBER working paper seriesvno. w11841 aDecember 2005.3 aThe prevailing view in finance is that the evidence for long-horizon stock return predictability is significantly stronger than that for short horizons. We show that for persistent regressors, a characteristic of most of the predictive variables used in the literature, the estimators are almost perfectly correlated across horizons under the null hypothesis of no predictability. For example, for the persistence levels of dividend yields, the analytical correlation is 99% between the 1- and 2-year horizon estimators and 94% between the 1- and 5-year horizons, due to the combined effects of overlapping returns and the persistence of the predictive variable. Common sampling error across equations leads to ordinary least squares coefficient estimates and R2s that are roughly proportional to the horizon under the null hypothesis. This is the precise pattern found in the data. The asymptotic theory is corroborated, and the analysis extended by extensive simulation evidence. We perform joint tests across horizons for a variety of explanatory variables, and provide an alternative view of the existing evidence. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web. 7aG12 - Asset Pricing • Trading Volume • Bond Interest Rates2Journal of Economic Literature class. 7aG10 - General2Journal of Economic Literature class. 7aC32 - Time-Series Models • Dynamic Quantile Regressions • Dynamic Treatment Effect Models • Diffusion Processes • State Space Models2Journal of Economic Literature class.1 aRichardson, Matthew.1 aWhitelaw, Robert.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w11841.4 uhttp://www.nber.org/papers/w1184141uhttp://dx.doi.org/10.3386/w11841