Return Predictability, Expectations, and Investment: Experimental Evidence

Return Predictability, Expectations, and Investment: Experimental Evidence

In an investment experiment, we show variations in information affect belief and decision behaviors within the information-beliefs-decisions chain. Subjects observe the time series of a risky asset and a signal that, in random rounds, helps predict returns. When they perceive the signal as useless,...

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Veröffentlicht in:The Review of financial studies 2024-08, p.1-39
Hauptverfasser: Andries, Marianne, Bianchi, Milo, Huynh, Karen, Pouget, Sébastien
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Humanities and Social Sciences
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Bianchi, Milo
Huynh, Karen
Pouget, Sébastien
description In an investment experiment, we show variations in information affect belief and decision behaviors within the information-beliefs-decisions chain. Subjects observe the time series of a risky asset and a signal that, in random rounds, helps predict returns. When they perceive the signal as useless, subjects form extrapolative forecasts, and their investment decisions underreact to their beliefs. When they perceive the signal as predictive, the same subjects rationally use it in their forecasts, they no longer extrapolate, and they rely significantly more on their forecasts when making risk allocations. Analyzing investments without observing forecasts and information sets leads to erroneous interpretations.
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source Oxford University Press Journals All Titles (1996-Current)
subjects Economics and Finance
Humanities and Social Sciences
title Return Predictability, Expectations, and Investment: Experimental Evidence
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