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Wall Street Crosses Memory Lane: How Witnessed Returns Affect Professionals' Expected Returns

51 Pages Posted: 1 Dec 2016 Last revised: 8 Jun 2017

Arvid O. I. Hoffmann

University of Adelaide - Business School; Network for Studies on Pensions, Aging and Retirement (Netspar)

Zwetelina Iliewa

Centre for European Economic Research (ZEW)

Lena Jaroszek

Copenhagen Business School - Department of Finance

Date Written: January 22, 2017

Abstract

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

Hoffmann, Arvid O. I. and Iliewa, Zwetelina and Jaroszek, Lena, Wall Street Crosses Memory Lane: How Witnessed Returns Affect Professionals' Expected Returns (January 22, 2017). Available at SSRN: https://ssrn.com/abstract=2877366

Arvid O. I. Hoffmann (Contact Author)

University of Adelaide - Business School ( email )

10 Pulteney Street
Adelaide, South Australia 5005
Australia

Network for Studies on Pensions, Aging and Retirement (Netspar)

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Zwetelina Iliewa

Centre for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

HOME PAGE: http://sites.google.com/view/ziliewa

Lena Jaroszek

Copenhagen Business School - Department of Finance ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

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