Sentiment about Stock Prices
41 Pages Posted: 23 Jun 2020
Date Written: February 13, 2020
The paper develops and estimates a stock pricing model with sentiment shocks to stock price forecasts and learning about stock prices by investors which replicates several survey evidence on stock price forecasts along with a standard set of asset pricing facts for the United States. A unique feature is that stock price forecasts in the model are not anchored by (or not co-integrated with) forecasts of fundamentals as in survey data. The model suggests about two-thirds of the fluctuations of stock price-dividend ratios are driven by shifting investors’ expectations as a result of the dynamic interaction between the sentiment shocks and investors’ learning.
Keywords: Survey Forecast, Sentiment, Learning, Co-integration, Asset Prices
JEL Classification: D84, G12, G17, G41
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