Countercyclical Expected Returns

28 Pages Posted: 10 Apr 2020

See all articles by Stig Vinther Møller

Stig Vinther Møller

Aarhus University - CREATES

Thomas Quistgaard Pedersen

Aarhus University - CREATES

Sigurd Steffensen

Danmarks Nationalbank (central bank of Denmark)

Date Written: March 16, 2020

Abstract

We study investor expectations of stock returns on the S&P 500 index using data from the Livingston survey over the 1952-2019 period. We find that investors have slow-moving and countercyclical expected stock returns consistent with consumption-based model predictions. We find no evidence that investors form return expectations by extrapolating from past trends in returns as under the adaptive expectations hypothesis.

Keywords: Survey data, rational expectations, extrapolative expectations

JEL Classification: E44, G12

Suggested Citation

Møller, Stig Vinther and Pedersen, Thomas Quistgaard and Steffensen, Sigurd, Countercyclical Expected Returns (March 16, 2020). Available at SSRN: https://ssrn.com/abstract=3555481 or http://dx.doi.org/10.2139/ssrn.3555481

Stig Vinther Møller

Aarhus University - CREATES ( email )

Nordre Ringgade 1
Aarhus, DK-8000
Denmark

Thomas Quistgaard Pedersen (Contact Author)

Aarhus University - CREATES ( email )

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

Sigurd Steffensen

Danmarks Nationalbank (central bank of Denmark) ( email )

Havnegade 5
Copenhagen, 1093
Denmark

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