"Superstitious" Investors

Hongye Guo and Jessica Wachter (jwachter@wharton.upenn.edu)

No 25603, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We consider an economy in which investors believe dividend growth is predictable, when in reality it is not. We show that these beliefs lead to excess volatility and return predictability. We also show that these beliefs are rational in the face of evidence on dividend growth. We apply this framework to explaining the value premium, predictability of bond returns, and the violation of uncovered interest rate parity.

JEL-codes: G02 G11 G12 (search for similar items in EconPapers)
Date: 2019-02
Note: AP
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