Handbook of Economic Forecasting

Chapter 6

Forecasting Stock Returns

David Rapach* and Guofu Zhou^†,     ^*John Cook School of Business, Saint Louis University, 3674 Lindell Boulevard, St. Louis, MO 63108, USA, ^†Olin School of Business,Washington University in St. Louis, St. Louis, MO 63130, USA, ^*E-mail: [e-mail], ^†E-mail: [e-mail]

Abstract

We survey the literature on stock return forecasting, highlighting the challenges faced by forecasters as well as strategies for improving return forecasts. We focus on U.S. equity premium forecastability and illustrate key issues via an empirical application based on updated data. Some studies argue that, despite extensive in-sample evidence of equity premium predictability, popular predictors from the literature fail to outperform ...