Behavioral Impulse Responses

Bryan T. Kelly, Semyon Malamud, Emil Siriwardane and Hongyu Wu
Additional contact information
Bryan T. Kelly: Yale SOM; AQR Capital Management, LLC; National Bureau of Economic Research (NBER)
Semyon Malamud: Ecole Polytechnique Federale de Lausanne; Centre for Economic Policy Research (CEPR); Swiss Finance Institute
Emil Siriwardane: Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)
Hongyu Wu: Yale School of Management

No 25-04, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We develop the concept of a Behavioral Impulse Response (BIR), which uses the dynamics of forecast errors to trace out how deviations from full-information rational expectations (FIRE) are corrected over time. BIRs based on professional forecasts of macroeconomics outcomes and corporate earnings imply that violations of FIRE occur much more frequently than suggested by existing tests. These deviations tend to correct gradually, often over several quarters, with sizable variation in correction speeds across different forecast targets and forecasters. Our theoretical analysis highlights why BIRs provide a simple yet powerful set of moments that can be used to discipline models of belief formation.

JEL-codes: C52 C53 D83 D84 E17 E7 G14 G17 (search for similar items in EconPapers)
Pages: 87 pages
Date: 2025-01
New Economics Papers: this item is included in nep-cbe and nep-ecm
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2504

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