Ten-year forecasts of real stock price changes

Abstract

This paper provides the strongest evidence to-date on the predictability of real stock prices over long horizons. Ex ante forecasts account for over two-thirds of the variation of the growth rate of real stock prices over ten year spans from 1940 through 2001. The paper forecasts negative growth rates of real stock prices over the next ten years. This bearish long-run outlook is buttressed by the long-run relationship between the growth rates of real stock prices, inflation, dividends, and productivity.