Are survey stock price forecasts anchored by fundamental forecasts? A long-run perspective

Kuang, P., Tang, L. ORCID: https://orcid.org/0000-0001-7119-3186, Zhang, R. and Zhang, T. (2024) Are survey stock price forecasts anchored by fundamental forecasts? A long-run perspective. Economic Theory. ISSN 1432-0479 doi: 10.1007/s00199-024-01597-2

Abstract/Summary

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.

Item Type	Article
URI	https://reading-clone.eprints-hosting.org/id/eprint/120833
Identification Number/DOI	10.1007/s00199-024-01597-2
Refereed	Yes
Divisions	Arts, Humanities and Social Science > School of Politics, Economics and International Relations > Economics
Publisher	Springer
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