Countercyclical Expected Returns
45 Pages Posted: 10 Apr 2020 Last revised: 7 Dec 2022
Date Written: March 16, 2020
We study how professional economists form expectations of returns on the S&P 500 index using data from the Livingston survey over the 1952-2019 period. We find that professional economists have countercyclical expectations of stock returns consistent with consumption-based model predictions. We find little evidence that professional economists form expectations about returns by extrapolating past trends in returns. However, there is clear evidence that expected returns are less persistent than what is implied by standard asset pricing theory.
Keywords: Survey data, countercyclical expectations, extrapolative expectations
JEL Classification: E44, G12
Suggested Citation: Suggested Citation