Equity premium prediction: Are economic and technical indicators unstable?

We show that technical indicators deliver stable economic value in predicting the U.S. equity premium over the out-of-sample period from 1966 to 2014. Results tentatively improve over time and beat alternatives over a large continuum of sub-periods. By contrast, economic indicators work well only until the 1970s, but thereafter they lose predictive power, even when the last crisis is considered. Translating the predictive power of technical indicators into a standard investment strategy delivers an annualized average Sharpe ratio of 0.55 p.a. (after transaction costs) for investors who had entered the market at any point in time.