I took a look at the history of lost decades in U.S. markets. In the past, I found that the excess cape yield (no inflation adjustment) does a pretty good job of predicting forward excess returns. So, I wanted to see if we can use the same metric to predict the likelihood of an upcoming lost decade.
Note that ***I define a lost decade as any long-term period where stocks underperform bonds.*** The exact definition, with examples, are in the post.
The study runs into the same issues that a lot of financial models run into - namely, not enough data, serial correlations, and wide standard error. But, broadly, it does a pretty good job in forecasting the potential for future underperformance.
