Forward Return Expectations / Mihir Gandhi, Niels Joachim Gormsen, Eben Lazarus.

Format:

Book

Author/Creator:

Gandhi, Mihir.

Contributor:

National Bureau of Economic Research.

Gormsen, Niels Joachim.

Lazarus, Eben.

Series:

Working Paper Series (National Bureau of Economic Research) no. w31687.

NBER working paper series no. w31687

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2023.

Summary:

We measure investors' short- and 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.

Notes:

Print version record

September 2023.