International Evidence on the Predictability of Stock Returns

Abstract This article examines the predictability of stock returns using international stock market data from eighteen countries. The study finds that the ability of dividend yields to predict stock returns increases as the return horizon lengthens from one month to forty‐eight months. These results add to earlier ones, based on U.S. data only, showing that predictability grows with the return horizon. The study also explores why the observed pattern of predictability arises and provides evidence supporting the reasons suggested by Fama and French.