Golez, Benjamin. <br/><br/>
Four Centuries of Return Predictability / 
Benjamin Golez, Peter Koudijs. 
 - Cambridge, Mass.  National Bureau of Economic Research  2014. 
 - 1 online resource:  illustrations (black and white); 
 - NBER working paper series  no. w20814 .
 - Working Paper Series (National Bureau of Economic Research)  no. w20814. .
<br/><br/> December 2014. 
<br/><br/> 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. 
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