Stock Price Expectations and Stock Trading

Michael Hurd () and Susann Rohwedder

No WR-938, Working Papers from RAND Corporation

Abstract: The fact that many individuals inexplicably fail to buy stocks, despite the historical evidence for a good return on investment has been referred to as the stock market puzzle. However, measurements of the subjective probability of a gain show that people are more pessimistic than historical outcomes would suggest. Further, expectations of future stock price increases apparently depend on old information, which would seem to be at odds with rational expectations in the context of efficient markets. To shed light on these apparent paradoxes, the authors analyzed the relationships between actual stock market price changes and the subjective probability of price changes, and between the subjective probability of price changes and the likelihood of engaging in stock trading.

Keywords: stock price expectations; stock trading (search for similar items in EconPapers)
JEL-codes: D83 D84 G11 (search for similar items in EconPapers)
Pages: 25
Date: 2012-07
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Citations: View citations in EconPapers (25)

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