|Date||19 May 2021|
The covariance of assert returns with economic states of the world is fundamental to rational asset pricing models. Using a semi-annual survey of forecasts by a panel of U.S. economists over more than 70 years, we estimate aggregate and individual expectations of covariance between the S&P index and macro-economic variables. Forecasters believe stock returns vary positively with pervasive macroeconomic factors but differ through time and across individuals. Before 1981, the median inflation forecast varied positively with stock market forecasts; the opposite was true post-1980. In preliminary results, we find significant experience-related cohort effects in beliefs about the stock-inflation co-variance. Experience differences among participants are used to explore a retrieved-context model. We find a small set of past contexts have sustained influence on predictions. These “attractors” differ by experience cohorts.
*Co-authored with Akiko Watanabe and Masahiro Watanabe (University of Alberta).
More information about title and abstract will follow in due course. This seminar will be organised via Zoom. If you are interested in joining this seminar, please send an email to the secretariat of the Finance Group.