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T. Dangl, M. Halling:
"Predictive Regressions with Time-Varying Coefficients";
Journal Of Financial Economics, 106 (2012), 1; 157 - 181.

We evaluate predictive regressions that explicitly consider the time-variation
of coefficients in a comprehensive Bayesian framework. For monthly returns
of the Standard & Poor´s S&P 500 index, we demonstrate statistical as well
as economic evidence of out-of-sample predictability: relative to an investor
using the historic mean, an investor using our methodology could have earned
consistently positive utility gains (between 1.8% and 5.8% per year over different
time periods). We also find that predictive models with constant coefficients
are dominated by models with time-varying coefficients. Finally,
we show a strong link between out-of-sample predictability and the business
cycle.

Empirical asset pricing, equity return prediction, Bayesian econometrics

http://dx.doi.org/10.1016/j.jfineco.2012.04.003