Using a unique survey dataset, the author studies how financial market experts form their stock market expectations. He documents a strong disagreement among experts about how important macroeconomic and financial variables are related to stock returns. The results of an analysis of the relationships between his main survey measure of expected returns and measures of economic conditions are largely consistent with the view that expected returns are counter-cyclical. In particular,the author finds a positive relationship between expected returns and the dividend-price ratio, which is at odds with the findings of previous papers studying survey measures of expected returns. Finally, he finds that an aggregated measure of the financial market experts’ stock return forecasts has weak predictive power for actual returns, but is a less precise forecast than a simple average of historical stock returns.
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