Journal Article10.3386/w31687
Forward Return Expectations
6
TL;DR: Forward return expectations are consistently countercyclical and excessively volatile, exceeding investors' own short-term return expectations in bad times.
read more
Abstract: We measure investors’ shortand long-term stock-return expectations using both options and survey data. These expectations at different horizons reveal what investors think their own short-term expectations will be in the future, or forward return expectations. While contemporaneous short-term expectations are not countercyclical across all data sources, we find that forward expectations are consistently countercyclical, and excessively so: in bad times, forward expectations are higher than justified by investors’ own subsequent short-term return expectations. This excess volatility in forward expectations helps account for excess volatility in prices, inelastic demand for equities, and stylized facts about the equity term structure.
read more
Chat with Paper
AI Agents for this Paper
Find similar papers on Google Scholar, PubMed and Arxiv
Write a critical review of this paper
Analyze citations of this paper to find unaddressed research gaps
Citations
Return Expectations and Portfolios: Evidence from Large Asset Managers
Magnus Dahlquist,Markus Ibert +1 more
TL;DR: The authors revisited the relationship between equity premium expectations and equity valuation ratios and found that the sensitivity of portfolios to expectations is large on average and even larger for funds that are less constrained by their investment mandates.
12
The 'Hairy' Premium
Pasquale Della Corte,Ljubica Georgievska,Anthony Saunders,Z. Tancheva +3 more
TL;DR: This study examines the concept of "hairy" premium, a phenomenon where consumers pay a higher price for products with imperfections or unique characteristics, such as artisanal goods or bespoke services, driven by emotional and social factors.
Financial Market with Learning from Price under Knightian Uncertainty
Hao Yang
TL;DR: Knightian uncertainty can lead to price overreaction or under-reaction and demand (in)elasticity. It exhibits a two-regime characteristic, causing uninformed traders to infer pessimistic market information from prices.
References
The Pricing of Options and Corporate Liabilities
Fischer Black,Myron S. Scholes +1 more
TL;DR: In this paper, a theoretical valuation formula for options is derived, based on the assumption that options are correctly priced in the market and it should not be possible to make sure profits by creating portfolios of long and short positions in options and their underlying stocks.
31.9K
A simple, positive semi-definite, heteroskedasticity and autocorrelation consistent covariance matrix
Whitney K. Newey,Kenneth D. West +1 more
TL;DR: In this article, a simple method of calculating a heteroskedasticity and autocorrelation consistent covariance matrix that is positive semi-definite by construction is described.
By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior
TL;DR: This paper presented a consumption-based model that explains a wide variety of dynamic asset pricing phenomena, including the procyclical variation of stock prices, the long-horizon predictability of excess stock returns, and the countercyclical variations of stock market volatility.
•Posted Content
By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior
TL;DR: In this paper, a consumption-based model is proposed to explain a wide variety of dynamic asset pricing phenomena, including the procyclical variation of stock prices, the long-term horizon predictability of excess stock returns, and the countercyclical variations of stock market volatility.
4.2K
•Posted Content
The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors
TL;DR: In this article, a linearization of a rational expectations present value model for corporate stock prices produces a simple relation between the log dividend-price ratio and mathematical expectations of future log real dividend changes and future real discount rates.
3.6K