Bank of Canada
234 Wellington Street
Ottawa ON K1A 0G9
Institutional Affiliation: Bank of Canada
NBER Working Papers and Publications
|October 2018||Do Survey Expectations of Stock Returns Reflect Risk-Adjustments?|
with Klaus Adam, Stefan Nagel: w25122
Motivated by the observation that survey expectations of stock returns are inconsistent with rational return expectations under real-world probabilities, we investigate whether alternative expectations hypotheses entertained in the asset pricing literature are consistent with the survey evidence. We empirically test (1) the notion that survey forecasts constitute rational but risk-neutral forecasts of future returns, and (2) the notion that survey forecasts are ambiguity averse/robust forecasts of future returns. We find that these alternative hypotheses are also strongly rejected by the data, albeit for different reasons. Hypothesis (1) is rejected because survey return forecasts are not in line with risk-free interest rates and because survey expected excess returns are predictable. Hypo...