Abstract
This paper firstly shows that a wide range of asset pricing models, including full information and Bayesian rational expectations models, typically imply that agents use the long-run cointegration relationship between stock prices and fundamentals to forecast future stock prices. However, using several widely used survey forecast datasets, we provide robust new evidence that survey forecasts of aggregate stock price indices are not cointegrated with forecasts of fundamentals (aggregate consumption, dividend, and output), both at the consensus and individual level. We argue that it is crucial to relax investors’ common knowledge of the equilibrium pricing function to reconcile this finding.
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We are grateful to Paul Beaudry, Tony Cookson, Jordi Gali, Jian Li, Albert Marcet and many participants of seminars at UAB, SUFE, HKUST, **an University, Peking University, SED conference (St. Louis), CCER Summer Institute, Shandong University, Behavioral Macroeconomics Workshop (Bamberg), Econometric Society China Meeting (Guangzhou) and North American Summer Meeting (Seattle), Shanghai Macroeconomics Workshop, SNDE conference (Dallas Fed), Royal Economic Society annual conference 2021, International Symposium on Econometric Theory and Applications (Osaka University) for helpful comments. Renbin Zhang thanks the National Natural Science Foundation of China for financial support through Grant 72203130. Renbin Zhang and Tongbin Zhang acknowledge financial support from the European Research Council under the European Union’s Horizon 2020 research and innovation program (788547-APMPAL-HET).
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Kuang, P., Tang, L., Zhang, R. et al. Are survey stock price forecasts anchored by fundamental forecasts? A long-run perspective. Econ Theory (2024). https://doi.org/10.1007/s00199-024-01597-2
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DOI: https://doi.org/10.1007/s00199-024-01597-2