What is the correct way (if there is one) to think about when authors claim that stocks have produced some percentage annual return X over every 20 year period of time? They might calculate this by using the monthly starting price of the S&P500 and compare it to the monthly ending price of the S&P500 20 years later to the month.
They might measure the return from Jan 1970 - Dec 1989 but they will also use the return from Feb 1970 - Jan 1990 as another point of data and so on.
My questions are threefold:
Since the time periods used for the analysis overlap each other except for the 1 month on each end as we move forward in time, is this really an accurate way to measure returns? Isn't the next 20 year period of time's rate of return highly correlated to the previous rate of return?
Does it make more sense to use non-overlapping 20 year periods to measure this? i.e. Jan 1970 - Dec 1989 being one data point and the next one being Jan 1990 - Dec 2009?
Do these measurements have any predictive capability or do they just tell us what stock returns have been in the past?