Discussion Paper Details
Please find the details for DP5770 in an easy to copy and paste format below:
Title: Predictability in Financial Markets: What Do Survey Expectations Tell Us?
Author(s): Philippe Bacchetta, Elmar Mertens and Eric van Wincoop
Publication Date: July 2006
Keyword(s): excess returns, expectations survey and predictability
Programme Area(s): Financial Economics and International Macroeconomics
Abstract: There is widespread evidence of excess return predictability in financial markets. In this paper we examine whether this predictability is related to expectational errors. To consider this issue, we use data on survey expectations of market participants in the stock market, the foreign exchange market, and the bond and money markets in various countries. We find that the predictability of expectational errors coincides with the predictability of excess returns: when a variable predicts expectational errors in a given market, it typically predicts the excess return as well. Understanding expectational errors appears crucial for explaining excess return predictability.
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Bacchetta, P, Mertens, E and van Wincoop, E. 2006. 'Predictability in Financial Markets: What Do Survey Expectations Tell Us?'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=5770