Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Working Knowledge
Business Research for Business Leaders
  • Browse All Articles
  • Popular Articles
  • Cold Call Podcast
  • Managing the Future of Work Podcast
  • About Us
  • Book
  • Leadership
  • Marketing
  • Finance
  • Management
  • Entrepreneurship
  • All Topics...
  • Topics
    • COVID-19
    • Entrepreneurship
    • Finance
    • Gender
    • Globalization
    • Leadership
    • Management
    • Negotiation
    • Social Enterprise
    • Strategy
  • Sections
    • Book
    • Podcasts
    • HBS Case
    • In Practice
    • Lessons from the Classroom
    • Op-Ed
    • Research & Ideas
    • Research Event
    • Sharpening Your Skills
    • What Do You Think?
    • Working Paper Summaries
  • Browse All
    Expectations of Returns and Expected Returns
    15 Feb 2013Working Paper Summaries

    Expectations of Returns and Expected Returns

    by Robin Greenwood and Andrei Shleifer
    Much of modern asset pricing seeks to explain changes in stock market valuations using theories of investors' time-varying required returns. Although researchers have achieved considerable progress in developing proxies for expected returns, an important but often overlooked test of these theories is whether investors' expectations line up with these proxies. This paper shows that they do not. Key concepts include:
    • Survey measures of investor expectations are not meaningless noise, but rather reflections of widely shared beliefs about future market returns, which tend to be extrapolative in nature.
    • Future models of stock market fluctuations should embrace the large fraction of investors whose expectations are extrapolative.
    LinkedIn
    Email

    Author Abstract

    We analyze time-series of investor expectations of future stock market returns from five data sources between 1963 and 2011. All five measures of expectations are highly positively correlated with each other, as well as with past stock returns and with the level of the stock market. However, investor expectations are strongly negatively correlated with model-based expected returns. We reconcile the evidence by calibrating a simple behavioral model, in which fundamental traders require a premium to accommodate expectations shocks from extrapolative traders, but markets are not efficient.

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: January 2013
    • HBS Working Paper Number: 18686
    • Faculty Unit(s): Finance
      Trending
        • 27 Jan 2023
        • Op-Ed

        Have We Lost Sight of Integrity?

        • 01 Feb 2023
        • What Do You Think?

        Will Hybrid Work Strategies Pull Down Long-Term Performance?

        • 31 Jan 2023
        • Research & Ideas

        It’s Not All About Pay: College Grads Want Jobs That ‘Change the World’

        • 17 Jan 2023
        • In Practice

        8 Trends to Watch in 2023

        • 28 Feb 2018
        • Sharpening Your Skills

        Master the Team Meeting

    Robin Greenwood
    Robin Greenwood
    George Gund Professor of Finance and Banking
    Anne and James F. Rothenberg Faculty Fellow
    Senior Associate Dean for Faculty Development and Research
    Contact
    Send an email
    → More Articles
    Find Related Articles
    • Finance
    • Economics
    • Financial Services

    Sign up for our weekly newsletter

    Interested in improving your business? Learn about fresh research and ideas from Harvard Business School faculty.
    This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
    ǁ
    Campus Map
    Harvard Business School Working Knowledge
    Baker Library | Bloomberg Center
    Soldiers Field
    Boston, MA 02163
    Email: Editor-in-Chief
    →Map & Directions
    →More Contact Information
    • Make a Gift
    • Site Map
    • Jobs
    • Harvard University
    • Trademarks
    • Policies
    • Accessibility
    • Digital Accessibility
    Copyright © President & Fellows of Harvard College