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Do Survey Probabilities Match Financial Market Beliefs?

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  • Robin L. Lumsdaine
  • Rogier J. D. Potter van Loon

Abstract

This article considers whether survey respondents' views regarding the likelihood of stock index returns exceeding specific thresholds are comparable to market views indicated by index options with strikes at analogous thresholds. It is motivated by the observation that the wording used to elicit subjective beliefs in surveys about expected future returns resembles the question a purchaser of a call option might ask. Building on this association, the authors document a similarity between the views of survey respondents and those of financial market participants as measured through call options, although the association is not 1-for-1. They find a closer association for those demonstrating a better understanding of the laws of probability, suggesting that numeracy affects the accuracy of an elicited response.

Suggested Citation

  • Robin L. Lumsdaine & Rogier J. D. Potter van Loon, 2018. "Do Survey Probabilities Match Financial Market Beliefs?," Journal of Behavioral Finance, Taylor & Francis Journals, vol. 19(2), pages 209-220, April.
    • Handle: RePEc:taf:hbhfxx:v:19:y:2018:i:2:p:209-220
    DOI: 10.1080/15427560.2017.1376330
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    Cited by:

    1. Dacorogna, Michel & Debbabi, Nehla & Kratz, Marie, 2023. "Building up cyber resilience by better grasping cyber risk via a new algorithm for modelling heavy-tailed data," European Journal of Operational Research, Elsevier, vol. 311(2), pages 708-729.

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