Myopic Expectations and Stock Market Mispricing

91 Pages Posted: 27 Oct 2021 Last revised: 11 Apr 2024

See all articles by Yingguang (Conson) Zhang

Yingguang (Conson) Zhang

Peking University - Department of Finance, Guanghua School of Management

Guofu Zhou

Washington University in St. Louis - John M. Olin Business School

Yingzi Zhu

Tsinghua University - School of Economics & Management

Date Written: April 8, 2024

Abstract

Are expectations in financial markets myopic? Based on a new multi-horizon expectation framework and using data of U.S. stock analysts’ forecasts, we find that their forecasts are myopic, and their myopic expectations are associated with large price distortions even in recent periods. Our study distinguishes among different sources of myopic expectations, reconciles myopia with long-horizon belief overreaction, quantifies myopia effects across horizons, tests the role of information frictions, and assesses the economic significance in terms of trading profits. Our framework is generally applicable to other settings with multi-horizon expectations, providing a useful tool for future research.

Keywords: Myopic expectations, stock returns, expectation term structure

JEL Classification: G11, G12, G14, D83, D84

Suggested Citation

Zhang, Yingguang and Zhou, Guofu and Zhu, Yingzi, Myopic Expectations and Stock Market Mispricing (April 8, 2024). Available at SSRN: https://ssrn.com/abstract=3950009 or http://dx.doi.org/10.2139/ssrn.3950009

Yingguang Zhang (Contact Author)

Peking University - Department of Finance, Guanghua School of Management ( email )

Beijing, Beijing 100871
China

Guofu Zhou

Washington University in St. Louis - John M. Olin Business School ( email )

Washington University
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-6384 (Phone)
314-658-6359 (Fax)

HOME PAGE: http://apps.olin.wustl.edu/faculty/zhou/

Yingzi Zhu

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China
+86-10-62786041 (Phone)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
299
Abstract Views
860
Rank
186,716
PlumX Metrics