Template-Type: ReDIF-Paper 1.0
Title: Expectations Data in Asset Pricing
Author-Name: Klaus Adam
Author-Email:adam@uni-mannheim.de
Author-Name: Stefan Nagel
Author-Email:stefan.nagel@chicagobooth.edu

Classification-JEL: G12, G41, E71
Keywords: Investor beliefs, survey forecasts, return expectations, cash
flow expectations, belief formation, asset price dynamics

Abstract: Asset prices reflect investors' subjective beliefs about future cash
flows and prices. In this chapter, we review recent research on the
formation of these beliefs and their role in asset pricing. Return ex-
pectations of individual and professional investors in surveys differ
markedly from those implied by rational expectations models. Vari-
ation in subjective expectations of future cash flows and price lev-
els appear to account for much of aggregate stock market volatility.
Mapping the survey evidence into agent expectations in asset pricing
models is complicated by measurement errors and belief heterogene-
ity. Recent e¤orts to build asset pricing models that match the survey
evidence on subjective belief dynamics include various forms of learn-
ing about payout or price dynamics, extrapolative expectations, and
diagnostic expectations. Challenges for future research include the
exploration of subjective risk perceptions, aggregation of measured
beliefs, and links between asset market expectations and the macro-
economy.

Note: 
Length: 38
Creation-Date: 2022-02
Revision-Date: 
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp337
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2022_337