The Persistence of Miscalibration

58 Pages Posted: 2 Nov 2020 Last revised: 15 Jul 2023

See all articles by Michael Boutros

Michael Boutros

Government of Canada - Bank of Canada

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.

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)

Government of Canada - Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

Itzhak Ben-David

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

2100 Neil Avenue
Fisher 700D
Columbus, OH 43210-1144
United States
773 988 1353 (Phone)

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

National Bureau of Economic Research (NBER) ( email )

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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)

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

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

John W. Payne

Duke University - Marketing ( email )

United States

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