From the Horse's Mouth: Gauging Conditional Expected Stock Returns from Investor Surveys

47 Pages Posted: 26 Feb 2005

See all articles by Gene Amromin

Gene Amromin

Federal Reserve Bank of Chicago

Steven A. Sharpe

Federal Reserve Board - Research & Statistics

Date Written: February 8, 2005

Abstract

We use data obtained from a series of Michigan Surveys of Consumer Attitudes to study stock market beliefs and portfolio choices of individual investors. We find that expected returns over the medium- and long-term horizon appear to be extrapolated from past realized returns. The findings also indicate that a more optimistic assessment of macroeconomic conditions coincides with higher expected returns and lower expected volatility, implying strongly procyclical Sharpe ratios. These results are given added credence by the empirical finding that reported portfolio concentrations in equities tend to be higher for respondents who anticipate higher returns and lower uncertainty. Overall, our empirical results lend support to the hypothesis that equity valuations are lower during recessions - and subsequent returns are higher - because of undue pessimism about future returns, rather than high risk aversion.

Suggested Citation

Amromin, Gene and Sharpe, Steven A., From the Horse's Mouth: Gauging Conditional Expected Stock Returns from Investor Surveys (February 8, 2005). EFA 2005 Moscow Meetings Paper. Available at SSRN: https://ssrn.com/abstract=674002 or http://dx.doi.org/10.2139/ssrn.674002

Gene Amromin (Contact Author)

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
230 S. LaSalle
Chicago, IL 60604
United States
3123225368 (Phone)
3123226011 (Fax)

Steven A. Sharpe

Federal Reserve Board - Research & Statistics ( email )

20th & C. St., N.W.
Washington, DC 20551
United States
202-452-2875 (Phone)
202-452-3819 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
78
Abstract Views
1,023
rank
305,861
PlumX Metrics