"Superstitious" Investors

62 Pages Posted: 4 Mar 2019 Last revised: 27 Mar 2019

See all articles by Hongye Guo

Hongye Guo

University of Pennsylvania

Jessica A. Wachter

University of Pennsylvania - Finance Department; National Bureau of Economic Research (NBER)

Date Written: February 2019

Abstract

We consider an economy in which investors believe dividend growth is predictable, when in reality it is not. We show that these beliefs lead to excess volatility and return predictability. We also show that these beliefs are rational in the face of evidence on dividend growth. We apply this framework to explaining the value premium, predictability of bond returns, and the violation of uncovered interest rate parity.

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Suggested Citation

Guo, Hongye and Wachter, Jessica A., "Superstitious" Investors (February 2019). NBER Working Paper No. w25603, Available at SSRN: https://ssrn.com/abstract=3346222

Hongye Guo (Contact Author)

University of Pennsylvania ( email )

Jessica A. Wachter

University of Pennsylvania - Finance Department ( email )

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