Are survey stock price forecasts anchored by fundamental forecasts? A long-run perspective

Pei Kuang (), Li Tang (), Renbin Zhang () and Tongbin Zhang ()
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Pei Kuang: University of Birmingham
Li Tang: Middlesex University
Renbin Zhang: Shandong University
Tongbin Zhang: School of Economics, Shanghai University of Finance and Economics and Key Laboratory of Mathematical Economics (SUFE), Ministry of Education

Economic Theory, 2025, vol. 79, issue 2, No 9, 657-685

Abstract: Abstract This paper firstly shows that a wide range of asset pricing models, including full information and Bayesian rational expectations models, typically imply that agents use the long-run cointegration relationship between stock prices and fundamentals to forecast future stock prices. However, using several widely used survey forecast datasets, we provide robust new evidence that survey forecasts of aggregate stock price indices are not cointegrated with forecasts of fundamentals (aggregate consumption, dividend, and output), both at the consensus and individual level. We argue that it is crucial to relax investors’ common knowledge of the equilibrium pricing function to reconcile this finding.

Keywords: Survey expectation; Asset pricing; Cointegration (search for similar items in EconPapers)
JEL-codes: D84 G12 G17 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s00199-024-01597-2

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