Managerial Miscalibration / Itzhak Ben-David, John R. Graham, Campbell R. Harvey.

Format:

Book

Author/Creator:

Ben-David, Itzhak.

Contributor:

National Bureau of Economic Research.

Graham, John R.

Harvey, Campbell R.

Series:

Working Paper Series (National Bureau of Economic Research) no. w16215.

NBER working paper series no. w16215

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2010.

Summary:

Using a unique 10-year panel that includes more than 13,300 expected stock market return probability distributions, we find that executives are severely miscalibrated, producing distributions that are too narrow: realized market returns are within the executives' 80% confidence intervals only 36% of the time. We show that executives reduce the lower bound of the forecast confidence interval during times of high market uncertainty; however, ex post miscalibration is worst during periods of high uncertainty. We also find that executives who are miscalibrated about the stock market show similar miscalibration regarding their own firms' prospects. Finally, firms with miscalibrated executives seem to follow more aggressive corporate policies: investing more and using more debt financing.

Notes:

Print version record

July 2010.