Predictability in Financial Markets: What Do Survey Expectations Tell Us?

Philippe Bacchetta (), Elmar Mertens () and Eric van Wincoop ()

No 5770, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: There is widespread evidence of excess return predictability in financial markets. In this paper we examine whether this predictability is related to expectational errors. To consider this issue, we use data on survey expectations of market participants in the stock market, the foreign exchange market, and the bond and money markets in various countries. We find that the predictability of expectational errors coincides with the predictability of excess returns: when a variable predicts expectational errors in a given market, it typically predicts the excess return as well. Understanding expectational errors appears crucial for explaining excess return predictability.

Keywords: excess returns; expectations survey; predictability (search for similar items in EconPapers)
JEL-codes: F31 G12 G14 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-fin and nep-rmg
Date: 2006-07
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Related works:
Working Paper: Predictability in Financial Markets: What Do Survey Expectations Tell Us? (2006)
Working Paper: Predictability in Financial Markets: What Do Survey Expectations Tell Us? (2006)
Journal Article: Predictability in financial markets: What do survey expectations tell us? (2009)
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