Working Paper: NBER ID: w29949
Authors: William N. Goetzmann; Akiko Watanabe; Masahiro Watanabe
Abstract: The covariance of asset returns with economic states of the world is a fundamental input to asset pricing models. Using a semi-annual survey of forecasts by a panel of U.S. economists over more than 70 years, we infer forecaster beliefs about covariance between the S&P index and macro-economic factors. We find evidence that life-experience was a significant determinant of beliefs about the co-movement of inflation and stock returns
Keywords: covariance; asset returns; macroeconomic factors; forecaster beliefs; Livingston survey
JEL Codes: E31; E37; E44; G17
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Personal experiences (C91) | beliefs about expected comovement between stock prices and macroeconomic variables (E44) |
| Age-cohort effects (J11) | beliefs about inflation expectations (E31) |
| Life experience (I23) | beliefs about the comovement of inflation and stock returns (E31) |
| Oil price shock of the 1970s (Q43) | historical shift in expectations about the covariance between expected inflation and expected stock price growth (D84) |
| Economists' expectations about stock prices (G17) | covary positively with industrial production and GDP growth (O49) |