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Are survey stock price forecasts anchored by fundamental forecasts? A long-run perspective

Author

Listed:
  • Pei Kuang

    (University of Birmingham)

  • Li Tang

    (Middlesex University)

  • Renbin Zhang

    (Shandong University)

  • Tongbin Zhang

    (School of Economics, Shanghai University of Finance and Economics and Key Laboratory of Mathematical Economics (SUFE), Ministry of Education)

Abstract

This paper firstly shows that a wide range of asset pricing models, including full information and Bayesian rational expectations models, typically imply that agents use the long-run cointegration relationship between stock prices and fundamentals to forecast future stock prices. However, using several widely used survey forecast datasets, we provide robust new evidence that survey forecasts of aggregate stock price indices are not cointegrated with forecasts of fundamentals (aggregate consumption, dividend, and output), both at the consensus and individual level. We argue that it is crucial to relax investors’ common knowledge of the equilibrium pricing function to reconcile this finding.

Suggested Citation

  • Pei Kuang & Li Tang & Renbin Zhang & Tongbin Zhang, 2025. "Are survey stock price forecasts anchored by fundamental forecasts? A long-run perspective," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 79(2), pages 657-685, March.
    • Handle: RePEc:spr:joecth:v:79:y:2025:i:2:d:10.1007_s00199-024-01597-2
    DOI: 10.1007/s00199-024-01597-2
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    Keywords

    Survey expectation; Asset pricing; Cointegration;
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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