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

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

2012-03-10

arxiv.org/abs/1203.2250v1

Economy

Quantitative Finance

General Finance

39 pages, 8 figures, 5 tables

Scientific paper

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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