Irrational Analysts' Expectations as a Cause of Excess Volatility in Stock Prices
AbstractThis paper investigates whether excess stock price volatility may be due in part to a failure of the market to form rational expectations. Using data on analysts' expectations of long run earnings growth for individual companies, the authors report a number of interrelated results which lend support to this hypothesis. These results together imply that the cross-section of stock prices will also be excessively dispersed, so that stocks with low earnings expectations are underpriced and stocks with high earnings expectations are overpriced. As analysts' forecasts errors become apparent, stock prices adjust accordingly and so excess returns accrue. Copyright 1997 by Royal Economic Society.
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Bibliographic InfoArticle provided by Royal Economic Society in its journal The Economic Journal.
Volume (Year): 107 (1997)
Issue (Month): 441 (March)
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Other versions of this item:
- Bulkley, George & Harris, Richard, 1996. "Irrational Analysts' Expectations as a Cause of Excess Volatility in Stock Prices," Discussion Papers 9608, Exeter University, Department of Economics.
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
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- Andreas Fuster & Benjamin Hebert & David Laibson, 2012.
"Natural Expectations, Macroeconomic Dynamics, and Asset Pricing,"
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