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Low-Frequency Waves and the Medium to Long-Term US Stock Market Outlook

  • Valeriy Zakamulin
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    In this paper we provide compelling evidence of cyclical mean reversion and multiperiod stock return predictability over horizons of about 30 years with a half-life of about 15 years. This implies that the US stock market follows a long-term rhythm where a period of above average returns tends to be followed by a period of below average returns. We demonstrate that this long-term stock market rhythm moves in lockstep with corresponding long-term economic, social, and political rhythms in the US. Assuming that the past relationship between these rhythms will hold unaltered in the future, we provide the medium to long-term stock market outlook.

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    File URL: http://arxiv.org/pdf/1203.2250
    File Function: Latest version
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    Paper provided by arXiv.org in its series Papers with number 1203.2250.

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    Date of creation: Mar 2012
    Date of revision: Jan 2013
    Handle: RePEc:arx:papers:1203.2250
    Contact details of provider: Web page: http://arxiv.org/

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    1. McCracken, Michael W., 2007. "Asymptotics for out of sample tests of Granger causality," Journal of Econometrics, Elsevier, vol. 140(2), pages 719-752, October.
    2. John Y. Campbell & N. Gregory Mankiw, 1986. "Are Output Fluctuations Transitory?," NBER Working Papers 1916, National Bureau of Economic Research, Inc.
    3. Campbell, John, 1987. "Stock Returns and the Term Structure," Scholarly Articles 3207699, Harvard University Department of Economics.
    4. Simon Kuznets, 1954. "Concepts and Assumptions in Long-Term Projections of National Product," NBER Chapters, in: Long-Range Economic Projection, pages 7-42 National Bureau of Economic Research, Inc.
    5. John Y. Campbell & Motohiro Yogo, 2002. "Efficient Tests of Stock Return Predictability," Harvard Institute of Economic Research Working Papers 1972, Harvard - Institute of Economic Research.
    6. Bossaerts, Peter & Hillion, Pierre, 1999. "Implementing Statistical Criteria to Select Return Forecasting Models: What Do We Learn?," Review of Financial Studies, Society for Financial Studies, vol. 12(2), pages 405-28.
    7. Ronald Balvers & Yangru Wu & Erik Gilliland, 2000. "Mean Reversion across National Stock Markets and Parametric Contrarian Investment Strategies," Journal of Finance, American Finance Association, vol. 55(2), pages 745-772, 04.
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