Abstract

http://ssrn.com/abstract=1640552
 
 

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Managerial Miscalibration


Itzhak Ben-David


Ohio State University - Fisher College of Business, Finance Department; 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)

September 18, 2013

Quarterly Journal of Economics, Forthcoming

Abstract:     
Using a unique 10-year panel that includes more than 13,300 expected stock market return probability distributions, we find that executives are severely miscalibrated, producing distributions that are too narrow: realized market returns are within the executives’ 80% confidence intervals only 36% of the time. We show that executives reduce the lower bound of the forecast confidence interval during times of high market uncertainty; however, ex post miscalibration is worst during periods of high uncertainty. We also find that executives who are miscalibrated about the stock market show similar miscalibration regarding their own firms’ prospects. Finally, firms with miscalibrated executives seem to follow more aggressive corporate policies: investing more and using more debt financing.

Number of Pages in PDF File: 38

Keywords: Overprecision, Overconfidence, Behavioral Bias, Behavioral Economics, Investment, Leverage, Expected Returns, Survey Methodology, Capital Structure, Executive Compensation, Risk, Volatility Forecasts, Market Forecasts, Debt Policy, Behavioral Finance, Risk Premium

JEL Classification: G31, G32, G35, D03, D22, D84

Accepted Paper Series


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Date posted: July 16, 2010 ; Last revised: September 18, 2013

Suggested Citation

Ben-David, Itzhak and Graham, John R. and Harvey, Campbell R., Managerial Miscalibration (September 18, 2013). Quarterly Journal of Economics, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1640552 or http://dx.doi.org/10.2139/ssrn.1640552

Contact Information

Itzhak Ben-David (Contact Author)
Ohio State University - Fisher College of Business, Finance Department ( email )
2100 Neil Avenue
Fisher 700D
Columbus, OH 43210-1144
United States
773 988 1353 (Phone)
HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/index.htm

National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/
John Robert Graham
Duke University ( email )
Box 90120
Durham, NC 27708-0120
United States
919-660-7857 (Phone)
919-660-8030 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Campbell R. Harvey
Duke University - Fuqua School of Business ( email )
Box 90120
Durham, NC 27708-0120
United States
919-660-7768 (Phone)
919-660-8030 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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References:  62
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