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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Royal Economic Society in its journal The Economic Journal.
Volume (Year): 107 (1997)
Issue (Month): 441 (March)
Contact details of provider:
Postal: Office of the Secretary-General, School of Economics and Finance, University of St. Andrews, St. Andrews, Fife, KY16 9AL, UK
Phone: +44 1334 462479
Web page: http://www.res.org.uk/
More information through EDIRC
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
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Andreas Fuster & Benjamin Hebert & David Laibson, 2012.
"Natural Expectations, Macroeconomic Dynamics, and Asset Pricing,"
NBER Macroeconomics Annual,
University of Chicago Press, vol. 26(1), pages 1 - 48.
- Andreas Fuster & Benjamin Hebert & David Laibson, 2011. "Natural Expectations, Macroeconomic Dynamics, and Asset Pricing," NBER Chapters, in: NBER Macroeconomics Annual 2011, Volume 26, pages 1-48 National Bureau of Economic Research, Inc.
- Andreas Fuster & Benjamin Hebert & David Laibson, 2011. "Natural Expectations, Macroeconomic Dynamics, and Asset Pricing," NBER Working Papers 17301, National Bureau of Economic Research, Inc.
- Fuster, Andreas & Herbert, Benjamin & Laibson, David I., 2011. "Natural Expectations, Macroeconomic Dynamics, and Asset Pricing," Scholarly Articles 10140029, Harvard University Department of Economics.
- Green, Christopher J. & Maggioni, Paolo & Murinde, Victor, 2000. "Regulatory lessons for emerging stock markets from a century of evidence on transactions costs and share price volatility in the London Stock Exchange," Journal of Banking & Finance, Elsevier, vol. 24(4), pages 577-601, April.
- Gordon Burt, 1997. "Cultural Convergence in Historical Cultural Space-Time," Journal of Cultural Economics, Springer, vol. 21(4), pages 291-305, December.
- George Buckley & Richard Holt, 2004. "Forecasting Cross-Section Stock Returns using Theoretical Prices Estimated from an Econometric Model," ESE Discussion Papers 47, Edinburgh School of Economics, University of Edinburgh.
- Martin Wallmeier, 2005. "Analysts’ Earnings Forecasts for DAX100 Firms During the Stock Market Boom of the 1990s," Financial Markets and Portfolio Management, Springer, vol. 19(2), pages 131-151, August.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.