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Recovering Investor Expectations from Demand for Index Funds / Mark L. Egan, Alexander MacKay, Hanbin Yang.
- Format:
- Book
- Author/Creator:
- Egan, Mark L.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w26608.
- NBER working paper series no. w26608
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2020.
- Summary:
- We use a revealed-preference approach to estimate investor expectations of stock market returns. Using data on demand for index funds that follow the S&P 500, we develop and estimate a model of investor choice to flexibly recover the time-varying distribution of expected future returns across investors. Our analysis is facilitated by the prevalence of leveraged funds that track the same underlying asset: by choosing between higher and lower leverage, investors trade off higher return against less risk. Our estimates indicate that investor expectations are heterogeneous, extrapolative, and persistent. Following a downturn, investors become more pessimistic on average, but there is also an increase in disagreement among participating investors due to the presence of contrarian investors.
- Notes:
- Print version record
- January 2020.
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