Beliefs and Stock Market Fluctuations: New Evidence from the Past Seven Decades / David Thesmar, Emil Verner.

Format:

Book

Author/Creator:

Thesmar, David.

Contributor:

Verner, Emil.

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w35286.

NBER working paper series no. w35286

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2026.

Summary:

We construct a new long-run series of subjective expected equity returns from an independent equity analysis firm, spanning 1956-2024. These expected returns are strongly positively correlated with the earnings-price ratio, respond negatively to past returns, and predict future returns. These patterns contrast with subjective expectations of individual investors and professional forecasters, which are weakly or negatively correlated with our new measure. Disagreement between sophisticated and individual investors is associated with higher trading volume. Our findings are consistent with a model of heterogeneous beliefs, where naive investors extrapolate past returns, rather than past dividends, while sophisticated investors are close to rational.

Notes:

May 2026.

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