Heterogeneous Forecasters and Nonlinear Expectation Formation in the U.S. Stock Market

Christian Pierdzioch, Stefan Reitz and Jan-Christoph Ruelke

No 11, FinMaP-Working Papers from Collaborative EU Project FinMaP - Financial Distortions and Macroeconomic Performance: Expectations, Constraints and Interaction of Agents

Abstract: We use a Panel Smooth Transition Regression (STR) model to study nonlinearities in the expectation-formation process in the U.S. stock market. To this end, we use data from the Livingston survey to investigate how the importance of regressive and extrapolative expectations fluctuates over time as market conditions summarized by stock-market misalignments and recent returns change. We find that survey participants form stabilizing expectations in the long run. Short-run expectations, in contrast, are consistent with weak mean reversion of stock prices.

Keywords: Non-linear expectation formation; Survey data; Stock market; Heterogenous agents (search for similar items in EconPapers)
JEL-codes: C53 E47 G17 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-mac and nep-ore
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Heteroeneous forecasters and nonlinear expectation formation in US stock market (2015)
Working Paper: Heterogeneous forecasters and nonlinear expectation formation in the US stock market (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:fmpwps:11

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