Game Theory
NBER WORKING PAPER SERIES
EXPECTATIONS OF RETURNS AND EXPECTED RETURNS Robin Greenwood Andrei Shleifer Working Paper 18686 http://www.nber.org/papers/w18686
NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 January 2013
We thank Yueran Ma for outstanding research assistance and Josh Coval, Jared Dourdeville, Sam Hanson, Owen Lamont, Stefan Nagel, Joshua Schwartzstein, Adi Sunderam, Annette Vissing-Jorgensen, Jessica Wachter, Fan Zhang and seminar participants at UC Berkeley and the NBER for helpful suggestions. We are grateful to the Survey Research Center at the University of Michigan for providing access to their data. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2013 by Robin Greenwood and Andrei Shleifer. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.
Expectations of Returns and Expected Returns Robin Greenwood and Andrei Shleifer NBER Working Paper No. 18686 January 2013 JEL No. G02,G12,G14 ABSTRACT We analyze time-series of investor expectations of future stock market returns from six data sources between 1963 and 2011. The six measures of expectations are highly positively correlated with each other, as well as with past stock returns and with the level of the stock market. However, investor expectations are strongly negatively correlated with model-based expected returns. We reconcile the evidence by calibrating a simple behavioral model, in which fundamental traders require a premium to accommodate expectations shocks from extrapolative traders, but markets are not
EXPECTATIONS OF RETURNS AND EXPECTED RETURNS Robin Greenwood Andrei Shleifer Working Paper 18686 http://www.nber.org/papers/w18686
NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 January 2013
We thank Yueran Ma for outstanding research assistance and Josh Coval, Jared Dourdeville, Sam Hanson, Owen Lamont, Stefan Nagel, Joshua Schwartzstein, Adi Sunderam, Annette Vissing-Jorgensen, Jessica Wachter, Fan Zhang and seminar participants at UC Berkeley and the NBER for helpful suggestions. We are grateful to the Survey Research Center at the University of Michigan for providing access to their data. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2013 by Robin Greenwood and Andrei Shleifer. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.
Expectations of Returns and Expected Returns Robin Greenwood and Andrei Shleifer NBER Working Paper No. 18686 January 2013 JEL No. G02,G12,G14 ABSTRACT We analyze time-series of investor expectations of future stock market returns from six data sources between 1963 and 2011. The six measures of expectations are highly positively correlated with each other, as well as with past stock returns and with the level of the stock market. However, investor expectations are strongly negatively correlated with model-based expected returns. We reconcile the evidence by calibrating a simple behavioral model, in which fundamental traders require a premium to accommodate expectations shocks from extrapolative traders, but markets are not
References: 33 Lettau, Martin and Sydney Ludvigson, 2001, “Consumption, Aggregate Wealth, and Expected Stock Returns,” Journal of Finance 56 (3): 815-849