A Fast Literature Search Engine based on top-quality journals, by Dr. Mingze Gao.
- Topic classification is ongoing.
- Please kindly let me know [mingze.gao@mq.edu.au] in case of any errors.
Belief Overreaction and Stock Market Puzzles
Resource type
Authors/contributors
- Bordalo, Pedro (Author)
- Gennaioli, Nicola (Author)
- Porta, Rafael La (Author)
- Shleifer, Andrei (Author)
Title
Belief Overreaction and Stock Market Puzzles
Abstract
We construct an index of long-term expected earnings growth for S&P 500 firms and show that it has remarkable power to jointly predict future errors in expectations and stock returns, in both the aggregate market and the cross section. The evidence supports a mechanism whereby good news causes investors to become too optimistic about long-term earnings growth. This leads to inflated stock prices and, as beliefs are systematically disappointed, subsequent low returns in the aggregate market. Overreaction of long-term expectations helps resolve major asset-pricing puzzles without time-series or cross-sectional variation in required returns.
Publication
Journal of Political Economy
Volume
132
Issue
5
Pages
1450-1484
Date
2024-05-01
DOI
ISSN
0022-3808
Accessed
2024-06-27
Extra
Publisher: The University of Chicago Press
Citation
Bordalo, P., Gennaioli, N., Porta, R. L., & Shleifer, A. (2024). Belief Overreaction and Stock Market Puzzles. Journal of Political Economy, 132, 1450–1484.
Link to this record