An extensive literature documents the predictability of both short and long horizon returns, over a wide range of sample periods, frequencies and markets. This predictability may represent weak form inefficiency, or it may be caused by a failure to account for a time-variation in risk. We...

We investigate the predictable component of excess returns in German, Japanese, UK and US aggregate stock indices, finding evidence to suggest that the frequently documented predictable component in excess returns is predominantly due to a failure in previous research to consider risk.