Abstract
This paper examines return predictability of the U.S. stock market using portfolios sorted by size, book-to-market ratio, and industry. A novel panel variance ratio test is proposed and employed to evaluate time-varying return predictability from 1964 to 2011. It is found that the stock returns have been highly predictable from 1964 to 1996, except for a period around the 1987 stock market crash. After 1997, the stock returns have been unpredictable overall. At a disaggregated level, size and technology have been the major contributors to cross-sectional differences in informational efficiency.
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