Do Survey Expectations of Stock Returns Reflect Risk-Adjustments? / Klaus Adam, Dmitry Matveev, Stefan Nagel.

Format:

Book

Author/Creator:

Adam, Klaus.

Contributor:

National Bureau of Economic Research.

Matveev, Dmitry.

Nagel, Stefan.

Series:

Working Paper Series (National Bureau of Economic Research) no. w25122.

NBER working paper series no. w25122

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2018.

Summary:

Motivated by the observation that survey expectations of stock returns are inconsistent with rational return expectations under real-world probabilities, we investigate whether alternative expectations hypotheses entertained in the asset pricing literature are consistent with the survey evidence. We empirically test (1) the notion that survey forecasts constitute rational but risk-neutral forecasts of future returns, and (2) the notion that survey forecasts are ambiguity averse/robust forecasts of future returns. We find that these alternative hypotheses are also strongly rejected by the data, albeit for different reasons. Hypothesis (1) is rejected because survey return forecasts are not in line with risk-free interest rates and because survey expected excess returns are predictable. Hypothesis (2) is rejected because agents are not always pessimistic about future returns, instead often display overly optimistic return expectations. We speculate as to what kind of expectations theories might be consistent with the available survey evidence.

Notes:

Print version record

October 2018.