Nonlinear expectation formation in the U.S. stock market: Empirical evidence from the Livingston survey

Arbeitspapier

We use a Panel Smooth Transition Regression (STR) model to study nonlinearities in the expectation-formation process in the U.S. stock market. To this end, we use data from the Livingston survey to investigate how the importance of regressive and extrapolative expectations fluctuates over time as market conditions summarized by stock-market misalignments and recent returns change. We find that survey participants form stabilizing expectations in the long run. Short-run expectations, in contrast, are consistent with weak mean reversion of stock prices.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Kiel Working Paper ; No. 1947 [rev.]

Classification and Topics

• Classification: Wirtschaft ; Financial Forecasting and Simulation ; Money and Interest Rates: Forecasting and Simulation: Models and Applications ; Forecasting Models; Simulation Methods
• Subject: Non-linear expectation formation ; Survey data ; Stock market ; Heterogeneous agents

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Pierdzioch, Christian ; Reitz, Stefan ; Ruelke, Jan-Christoph
• Event: Veröffentlichung
• (who): Kiel Institute for the World Economy (IfW)
• (where): Kiel
• (when): 2015

Further information

• Handle: http://hdl.handle.net/10419/130557
• Last update: 10.03.2025, 11:43 AM CET