Equity premium prediction: Are economic and technical indicators unstable?

We show that technical indicators deliver stable economic value in predicting the US equity premium over the out-of-sample period from 1966 to 2014. The results tentatively improve over time, and beat alternatives over a large continuum of sub-periods. In contrast, economic indicators work well only until the 1970s, but lose predictive power thereafter, even when considering the last crisis. 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 entered the market at any point in time.