How Much Do Subjective Growth Expectations Matter for Asset Prices?
129 Pages Posted: 17 Sep 2022 Last revised: 13 Oct 2023
Date Written: September 3, 2022
Abstract
I find that the causal effect of subjective growth expectations on asset prices is far smaller than standard models suggest. To quantify this causal effect, I construct an asset demand model in which Bayesian investors learn from analysts and other signals. Leveraging holdings, prices, and beliefs data, I find a 1% rise in annual investor growth expectations raises price by 60% to 90% less than in standard models. This small causal effect arises from the limited passthrough of beliefs to asset demand, and is consistent with small price elasticities of demand.
Keywords: Subjective Beliefs, Asset Demand, High-Frequency Identification, Machine Learning
JEL Classification: G12,G02
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