New models predict stock market returns with 16-19% accuracy.
The article explores how to predict stock market returns using two new models. One model looks at the relationship between market returns and a pricing kernel, while the other model uses past portfolio returns to predict future returns. Both models show that market returns can be predicted with an accuracy of 16-19% for 1-year returns. The study also finds that changes in the pricing kernel are linked to the cash flow part of market returns.