We show that the call-put implied volatility spread (IVS) outperforms many well-known predictors of the U.S. equity premium at return horizons up to six months over the period from 1996:1 to 2017:12. The predictive ability of the IVS is unrelated to the dividend yield and is useful in explaining...

Long-horizon predictability is not a myth. We propose a new analytical standard error for predictive regressions that does not impose the null hypothesis that returns are unpredictable and exhibits substantial power gains relative to popular tests. Deriving the covariance matrix under the...