Martijn F. Boons, Nova SBE: What Drives the Volatility of Professional Stock Return Forecasts? Causal Evidence from Macro Shocks

Seminars - Department Seminar Series
Speakers
Martijn F. Boons, Nova SBE
12:30 - 13:45
Seminar Room 2-e4-sr03 - Via Roentgen, 1

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.