One of the most influential lines of research in financial economics over the past generation has been the “discovery” that asset returns are predictable. The predictability, as documented in the literature, isn’t much help to day traders. Instead, numerous studies lay out the empirical case for arguing that a) expected returns fluctuate, and b) they fluctuate with some degree of recurring patterns relative to various factors, such as dividend yield and price-to-earnings ratio across medium- and long-term horizons in the equity market, for instance. This news surprised a lot of economists, including several who have helped lay the groundwork for indexing, which is widely favored by investors who think that forecasting generally is bunk. So far, so good, although it’s easy abuse this discovery, as a recent research paper from Vanguard reminds.