Long Term Expectations And Aggregate Fluctuations

Download or read book Long Term Expectations and Aggregate Fluctuations written by Pedro Bordalo and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In line with Keynes' intuition, volatility in the stock market and in real economic activity are linked by expectations of long term profits. We show that analysts' optimism about the long term earnings growth of S&P 500 firms is associated with a near term boom in major US financial markets, real investment, and other business cycle indicators. The same optimism however predicts disappointing earnings growth and a contraction in financial markets and real activity one to two years later. Overreaction of measured long term profit expectations emerges as a promising mechanism for reconciling Shiller's excess volatility puzzle with the business cycle.