Equity Return Expectations and Portfolios: Evidence from Large Asset Managers

68 Pages Posted: 14 Jan 2021 Last revised: 12 Sep 2022

See all articles by Magnus Dahlquist

Magnus Dahlquist

Stockholm School of Economics; Swedish House of Finance

Markus Ibert

Copenhagen Business School - Department of Finance; Swedish House of Finance

Date Written: September 11, 2022

Abstract

Collecting large asset managers' capital market assumptions, we revisit the relationships between subjective equity premium expectations, equity valuations, and financial portfolios. In contrast to the well-documented extrapolative expectations of retail investors, asset managers' equity premium expectations are countercyclical: they are high (low) when valuations are low (high). We find that asset managers' portfolios reflect their expectations: allocation funds of asset managers with larger US equity premium expectations invest significantly more in US equities. The pass-through of expectations to portfolios is greater than previously documented, but muted by investment mandates and smaller than the one predicted by standard portfolio choice models.

Keywords: Asset management, beliefs, expectations formation, semi-elasticity of demand

JEL Classification: G00, G12, G23

Suggested Citation

Dahlquist, Magnus and Ibert, Markus, Equity Return Expectations and Portfolios: Evidence from Large Asset Managers (September 11, 2022). Swedish House of Finance Research Paper No. 21-1, Available at SSRN: https://ssrn.com/abstract=3763796 or http://dx.doi.org/10.2139/ssrn.3763796

Magnus Dahlquist

Stockholm School of Economics ( email )

Drottninggatan 98
Stockholm, SE-111 60
Sweden

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Markus Ibert (Contact Author)

Copenhagen Business School - Department of Finance ( email )

Solbjerg Plads 3, SOL/A4.17
Copenhagen, Frederiksberg 2000

Swedish House of Finance ( email )

Drottninggatan 98
Stockholm, 11160
Sweden

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