The Persistence of Miscalibration

Michael Boutros, Itzhak Ben-David, John R. Graham, Campbell Harvey () and John W. Payne

No 28010, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Using 14,800 forecasts of one-year S&P 500 returns made by Chief Financial Officers over a 12-year period, we track the individual executives who provide multiple forecasts to study how their beliefs evolve dynamically. While CFOs’ return forecasts are systematically unbiased, their confidence intervals are far too narrow, implying significant miscalibration. We find that when return realizations fall outside of ex-ante confidence intervals, CFOs’ subsequent confidence intervals widen considerably. These results are consistent with a model of Bayesian learning which suggests that the evolution of beliefs should be impacted by return realizations. However, the magnitude of the updating is dampened by the strong conviction in beliefs inherent in the initial miscalibration and, as a result, miscalibration persists.

JEL-codes: D03 D83 D84 E03 G30 G41 (search for similar items in EconPapers)
Date: 2020-10
New Economics Papers: this item is included in nep-evo
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