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Sticky Expectations and Stock Market Anomalies

Abstract : We propose a theory of one of the most economically significant stock market anomalies, i.e. the "profitability" anomaly. In our model, investors forecast future profits using a signal and sticky belief dynamics. In this model, past profits forecast future returns (the profitability anomaly). Using analyst forecast data, we measure expectation stickiness at the firm level and find strong support for three additional predictions of the model: (1) analysts are on average too pessimistic regarding the future profits of high profit firms, (2) the profitability anomaly is stronger for stocks which are followed by stickier analysts, and (3) it is also stronger for stocks with more persistent profits.
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Preprints, Working Papers, ...
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https://hal-hec.archives-ouvertes.fr/hal-01993418
Contributor : Antoine Haldemann Connect in order to contact the contributor
Submitted on : Thursday, January 24, 2019 - 9:07:59 PM
Last modification on : Saturday, June 25, 2022 - 10:56:25 AM

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  • HAL Id : hal-01993418, version 1

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Jean-Philippe Bouchaud, Philipp Krueger, Augustin Landier, David Thesmar. Sticky Expectations and Stock Market Anomalies. 2016. ⟨hal-01993418⟩

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