Abstract

Consensus professional stock return forecasts are three times more volatile than those of nonprofessionals
and econometricians. This volatility stems from professionals’ countercyclical
responses to macro-shocks, with different shocks each accounting for 20-40% of the variation
in forecast differences. We introduce a two-stage procedure to identify the discount rate variation
in professional forecasts due to shocks and find it aligns well with realized returns and
implications of rational asset pricing models. We conclude that professionals’ assessment of the
discount rate impact of macro-shocks distinguishes them from other stock return forecasts and
forecasts of macro-variables, which challenges models of expectation formation.