Wall Street Crosses Memory Lane: How Witnessed Returns Affect Professionals' Expected Returns
51 Pages Posted: 1 Dec 2016 Last revised: 18 Dec 2017
Date Written: January 22, 2017
Witnessing stock market history in the making leaves behind a vivid story, but does not provide valuable information. Nevertheless, well-versed finance professionals extrapolate from witnessed returns when forming beliefs about expected returns which we show by using a unique dataset regarding professionals' career start in the finance industry. This result is robust to controlling for all publicly available information and interpersonal differences. Additionally, we find that returns witnessed early on in a career are more formative than those witnessed recently. Among the potential channels through which witnessed returns might affect professionals' expectations, a judgmental bias appears the most plausible.
Keywords: Finance Professionals, Expected Returns, Witnessed Returns, Non-Informative Observations, Early Career Experiences
JEL Classification: D83, D84, G02, G17
Suggested Citation: Suggested Citation