Search Results
Working Paper
From the horse's mouth: gauging conditional expected stock returns from investor surveys
We use data obtained from a series of Michigan Surveys of Consumer Attitudes to study stock market beliefs and portfolio choices of individual investors. We find that expected returns over the medium- and long-term horizon appear to be extrapolated from past realized returns. The findings also indicate that a more optimistic assessment of macroeconomic conditions coincides with higher expected returns and lower expected volatility, implying strongly procyclical Sharpe ratios. These results are given added credence by the empirical finding that reported portfolio concentrations in equities ...
Conference Paper
Bank asset opaqueness: some comments
Working Paper
Getting bad news out early: does it really help stock prices?
In this paper, we examine the stock price benefit of meeting or beating earnings expectations. Using a general methodology, we find no evidence that the timing of earnings news has any benefit for firms' stock returns. In fact, in many cases we find firms attempting to engineer positive earnings surprises by beating down expectations only to discover that their efforts are counterproductive. Our results appear to overturn the findings of previous authors who, using less general methodologies, have suggested that firms can boost their stock returns by getting bad news out early. Our results ...
Working Paper
Stock prices, expected returns, and inflation
This paper examines the effect of expected inflation on stock prices and expected long-run returns. An ex ante estimates measure of expected long-run returns is derived by incorporating estimates of expected of future corporate cash flows into a variant of the Campbell-Shiller dividend-price ratio model. In this model, the log earnings-price ratio is expressed as a linear function of expected future returns, expected earnings growth rates, and the log of the current dividend-payout ratio. Expectations of earnings growth are inferred from equity analysts' earnings forecasts, while inflation ...
Working Paper
Anchoring bias in consensus forecasts and its effect on market prices
Previous empirical studies that test for the "rationality" of economic and financial forecasts generally test for generic properties such as bias or autocorrelated errors, and provide limited insight into the behavior behind inefficient forecasts. In this paper we test for a specific behavioral bias -- the anchoring bias described by Tversky and Kahneman (1974). In particular, we examine whether expert consensus forecasts of monthly economic releases from Money Market Services surveys from 1990-2006 have a tendency to be systematically biased toward the value of previous months' data ...
Working Paper
Did pension plan accounting contribute to a stock market bubble?
During the 1990s, the asset portfolios of defined-benefit (DB) pension plans ballooned with the booming stock market. Due to current accounting guidelines, the robust growth in pension assets resulted in a stealthy but substantial boost to the profits of sponsoring corporations. This study assesses the extent to which equity investors were fooled by pension accounting. First, we test whether stock prices reflected the fair market value of sponsoring firms' net pension assets reported in footnotes to the 10-K or, instead, some capitalization rate on the pension cost accruals embedded in the ...
Working Paper
The insensitivity of investment to interest rates: Evidence from a survey of CFOs
A fundamental tenet of investment theory and the traditional theory of monetary policy transmission is that investment expenditures by businesses are negatively affected by interest rates. Yet, a large body of empirical research offer mixed evidence, at best, for a substantial interest-rate effect on investment. In this paper, we examine the sensitivity of investment plans to interest rates using a set of special questions asked of CFOs in the Global Business Outlook Survey conducted in the third quarter of 2012. Among the more than 500 responses to the special questions, we find that most ...
Working Paper
How did the 2003 dividend tax cut affect stock prices and corporate payout policy?
We examine the effects of the 2003 dividend tax cut on U.S. stock prices and corporate payout policies. First, using an event-study methodology, we compare the performance of U.S. stocks to that of other securities that should not have benefited from the tax change. We find that U.S. large-cap and small-cap indexes do not outperform their European counterparts, nor REIT stocks, over the event windows, suggesting little if any aggregate stock market effect from the tax change. In cross-sectional analysis, high-dividend stocks outperformed low-dividend stocks by a few percentage points over the ...
Working Paper
What's the Story? A New Perspective on the Value of Economic Forecasts
We apply textual analysis tools to measure the degree of optimism versus pessimism of the text that describes Federal Reserve Board forecasts published in the Greenbook. The resulting measure of Greenbook text sentiment, ?Tonality,? is found to be strongly correlated, in the intuitive direction, with the Greenbook point forecast for key economic variables such as unemployment and inflation. We then examine whether Tonality has incremental power for predicting unemployment, GDP growth, and inflation up to four quarters ahead. We find it to have significant and substantive predictive power for ...