The Term Structure of Return Expectations

The Essex Finance Centre (EFiC) warmly invites you to join the research seminar with Dr Cameron Peng from the London School of Economics and Political Science.

Using a long-running survey covering both retail and institutional investors, we study the determinants of return expectations across investor types and forecasting horizons. We find that retail and institutional return expectations are more similar than prior literature has documented, showing a strong, positive correlation across all forecasting horizons.

For both retail and institutional investors, short-term expectations are consistently extrapolative and procyclical, while forward return expectations are consistently contrarian and countercyclical. This countercyclicality results from a “gradual mispricing correction:” although investors perceive rising markets as overpriced, they expect corrections to occur not immediately, but gradually in the longer run. Countercyclical forward return expectations influence investors' trading behaviour and may help explain the excess volatility of the aggregate stock market.

Speaker

Cameron Peng is an Assistant Professor of Finance at the London School of Economics and Political Science. He is also a Research Affiliate at the Centre for Economic Policy Research (CEPR). His research focuses on behavioural economics, behavioural finance, household finance, and empirical asset pricing. His work has been published in top finance journals, including the Review of Financial Studies and the Journal of Financial Economics. He holds a B.A. in Finance from Peking University and a Ph.D. in Financial Economics from Yale University.

How to attend

This event is being held on Zoom. To receive the Zoom link please email Dr Anna Sarkisyan at asarkisyan@essex.ac.uk.