Expectations Data in Asset Pricing / Klaus Adam, Stefan Nagel.

Format:

Book

Author/Creator:

Adam, Klaus.

Contributor:

National Bureau of Economic Research.

Nagel, Stefan.

Series:

Working Paper Series (National Bureau of Economic Research) no. w29977.

NBER working paper series no. w29977

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2022.

Summary:

Asset prices reflect investors' subjective beliefs about future cash flows and prices. In this chapter, we review recent research on the formation of these beliefs and their role in asset pricing. Return expectations of individual and professional investors in surveys differ markedly from those implied by rational expectations models. Variation in subjective expectations of future cash flows and price levels appear to account for much of aggregate stock market volatility. Mapping the survey evidence into agent expectations in asset pricing models is complicated by measurement errors and belief heterogeneity. Recent efforts to build asset pricing models that match the survey evidence on subjective belief dynamics include various forms of learning about payout or price dynamics, extrapolative expectations, and diagnostic expectations. Challenges for future research include the exploration of subjective risk perceptions, aggregation of measured beliefs, and links between asset market expectations and the macroeconomy.

Notes:

Print version record

April 2022.