Time-varying predictability of the long horizon equity premium based on semiparametric regressions

This paper proposes a novel semiparametric model for long-horizon predictive regressions, in which the coefficients are allowed to be unknown functions of time. We pursue an indirect approach to estimate the long-horizon coefficients through the implication of the short-horizon coefficients. Empirically, the dividend-price ratio predicts either stock returns or dividend growth, or both in any local period. In comparison, dividend growth is less predictable than stock returns. (c) 2023 Elsevier B.V. All rights reserved.