Using Value Line’s Median Appreciation Potential
to Forecast Long-Horizon Market Returns

Abstract

Over the last twenty-five years, there has been extensive research devoted to the study of long-horizon stock return predictability. The potential predictability of long-horizon stock movements is clearly important for wealth managers, institutional investors, and economic policy makers. This is particularly true for investors with an investment horizon of five to 10 years (and beyond in many cases), which characterizes the investment approach of many long-term portfolios. This article shows that a rarely researched valuation measure, the Value Line Median Appreciation Potential (MAP), can also be used to reliably forecast long-horizon stock market movements. It then goes beyond many forecasting papers to show that the long-horizon forecasting ability of MAP can be used to construct a portfolio superior to buy-and-hold.