The Persistence of Miscalibration

58 Pages Posted: 2 Nov 2020

See all articles by Michael Boutros

Michael Boutros

Duke University

Itzhak Ben-David

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER)

John R. Graham

Duke University; National Bureau of Economic Research (NBER)

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

John W. Payne

Duke University - Marketing

Multiple version iconThere are 2 versions of this paper

Date Written: October 2020

Abstract

Using 14,800 forecasts of one-year S&P 500 returns made by Chief Financial Officers over a 12-year period, we track the individual executives who provide multiple forecasts to study how their beliefs evolve dynamically. While CFOs’ return forecasts are systematically unbiased, their confidence intervals are far too narrow, implying significant miscalibration. We find that when return realizations fall outside of ex-ante confidence intervals, CFOs’ subsequent confidence intervals widen considerably. These results are consistent with a model of Bayesian learning which suggests that the evolution of beliefs should be impacted by return realizations. However, the magnitude of the updating is dampened by the strong conviction in beliefs inherent in the initial miscalibration and, as a result, miscalibration persists.

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Suggested Citation

Boutros, Michael and Ben-David, Itzhak and Graham, John Robert and Harvey, Campbell R. and Payne, John W., The Persistence of Miscalibration (October 2020). NBER Working Paper No. w28010, Available at SSRN: https://ssrn.com/abstract=3723248

Michael Boutros (Contact Author)

Duke University ( email )

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Itzhak Ben-David

Ohio State University (OSU) - Department of Finance ( email )

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HOME PAGE: http://https://u.osu.edu/ben-david.1/

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John Robert Graham

Duke University ( email )

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National Bureau of Economic Research (NBER)

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Campbell R. Harvey

Duke University - Fuqua School of Business ( email )

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United States
919-660-7768 (Phone)

HOME PAGE: http://www.duke.edu/~charvey

National Bureau of Economic Research (NBER)

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John W. Payne

Duke University - Marketing ( email )

United States

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