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Working Paper
Predicting Analysts’ S&P 500 Earnings Forecast Errors and Stock Market Returns using Macroeconomic Data and Nowcasts
This study scrutinizes the quality of “bottom-up” forecasts of near-term S&P 500 Composite earnings, derived by aggregating analysts’ forecasts for individual firm-level earnings. We examine whether forecasts are broadly consistent with current macroeconomic conditions reflected in economists’ near-term outlook and other available data. To the contrary, we find that a simple macroeconomic model of aggregate S&P 500 earnings, coupled with GDP forecasts from the Blue Chip Survey and recent dollar exchange rate movements, can predict large and statistically significant errors in equity ...
Working Paper
Effects of Information Overload on Financial Markets: How Much Is Too Much?
Motivated by cognitive theories verifying that investors have limited capacity to process information, we study the effects of information overload on stock market dynamics. We construct an information overload index using textual analysis tools on daily data from The New York Times since 1885. We structure our empirical analysis around a discrete-time learning model, which links information overload with asset prices and trading volume when investors are attention constrained. We find that our index is associated with lower trading volume and predicts higher market returns for up to 18 ...