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Expectations of Returns and Expected Returns

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  • Robin Greenwood
  • Andrei Shleifer

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. The evidence is not consistent with rational expectations representative investor models of returns.

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Paper provided by Harvard University OpenScholar in its series Working Paper with number 102501.

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Handle: RePEc:qsh:wpaper:102501

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Cited by:
  1. Paolo Gelain & Kevin J. Lansing, 2013. "House prices, expectations, and time-varying fundamentals," Working Paper Series 2013-03, Federal Reserve Bank of San Francisco.
  2. Branch, William A. & Evans, George W., 2013. "Bubbles, crashes and risk," Economics Letters, Elsevier, vol. 120(2), pages 254-258.
  3. Paolo Gelain & Kevin J. Lansing & Caterina Mendicino, 2013. "House Prices, Credit Growth, and Excess Volatility: Implications for Monetary and Macroprudential Policy," International Journal of Central Banking, International Journal of Central Banking, vol. 9(2), pages 219-276, June.
  4. John C. Williams, 2013. "Bubbles tomorrow and bubbles yesterday, but never bubbles today?," Speech 122, Federal Reserve Bank of San Francisco.

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