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Do Survey Expectations of Stock Returns Reflect Risk Adjustments?

Klaus Adam (), Dmitry Matveev and Stefan Nagel ()

Staff Working Papers from Bank of Canada

Abstract: Motivated by the observation that survey expectations of stock returns are inconsistent with rational return expectations under real-world probabilities, we investigate whether alternative expectations hypotheses entertained in the literature on asset pricing are consistent with the survey evidence. We empirically test (1) the notion that survey forecasts constitute rational but risk-neutral forecasts of future returns, and (2) the notion that survey forecasts are ambiguity averse/robust forecasts of future returns. We find that these alternative hypotheses are also strongly rejected by the data, albeit for different reasons. Hypothesis (1) is rejected because survey return forecasts are not in line with risk-free interest rates and because survey expected excess returns are predictable. Hypothesis (2) is rejected because agents are not always pessimistic about future returns, instead often displaying overly optimistic return expectations. We speculate as to what kind of expectations theories might be consistent with the available survey evidence.

Keywords: Asset Pricing; Economic models; Financial markets (search for similar items in EconPapers)
JEL-codes: G10 G12 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2019-03
New Economics Papers: this item is included in nep-cfn
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Citations: View citations in EconPapers (4) Track citations by RSS feed

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Related works:
Journal Article: Do survey expectations of stock returns reflect risk adjustments? (2021) Downloads
Working Paper: Do Survey Expectations of Stock Returns Reflect Risk-Adjustments? (2019) Downloads
Working Paper: Do Survey Expectations of Stock Returns Reflect Risk-Adjustments? (2018) Downloads
Working Paper: Do Survey Expectations of Stock Returns Reflect Risk-Adjustments? (2018) Downloads
Working Paper: Do Survey Expectations of Stock Returns Reflect Risk-Adjustments? (2018) Downloads
Working Paper: Do survey expectations of stock returns reflect risk-adjustments? (2018) Downloads
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