From the horse's mouth: gauging conditional expected stock returns from investor surveys

Gene Amromin and Steven Sharpe

No 2005-26, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We use data obtained from a series of Michigan Surveys of Consumer Attitudes to study stock market beliefs and portfolio choices of individual investors. We find that expected returns over the medium- and long-term horizon appear to be extrapolated from past realized returns. The findings also indicate that a more optimistic assessment of macroeconomic conditions coincides with higher expected returns and lower expected volatility, implying strongly procyclical Sharpe ratios. These results are given added credence by the empirical finding that reported portfolio concentrations in equities tend to be higher for respondents who anticipate higher returns and lower uncertainty. Overall, our empirical results lend support to the hypothesis that equity valuations are lower during recessions--and--subsequent returns are higher--because of undue pessimism about future returns, rather than high risk aversion.

Keywords: Stock - Prices; Stockholders (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-fmk
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Journal Article: From the horse’s mouth: gauging conditional expected stock returns from investor surveys (2005)
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