Countercyclical Expected Returns
28 Pages Posted: 10 Apr 2020
Date Written: March 16, 2020
We study investor expectations of stock returns on the S&P 500 index using data from the Livingston survey over the 1952-2019 period. We find that investors have slow-moving and countercyclical expected stock returns consistent with consumption-based model predictions. We find no evidence that investors form return expectations by extrapolating from past trends in returns as under the adaptive expectations hypothesis.
Keywords: Survey data, rational expectations, extrapolative expectations
JEL Classification: E44, G12
Suggested Citation: Suggested Citation