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Title:Higher-order beliefs among professional stock market forecasters: some first empirical tests PDF Logo
Authors:Rangvid, Jesper
Schmeling, Maik
Schrimpf, Andreas
Issue Date:2009
Series/Report no.:ZEW Discussion Papers 09-042
Abstract:A sizeable literature reports that financial market analysts and forecasters herd for reputational reasons. Using new data from a large survey of professional forecasters' expectations about stock market movements, we find strong evidence that the expected average of all forecasters' forecasts (the expected consensus forecast) influences an individual forecaster's own forecast. This looks like herding. In our survey, forecasters do not herd for reputational reasons, however. Instead of herding, we suggest that forecasters form higher-order expectations in the spirit of Keynes (1936). We find that young forecasters and portfolio managers, who in previous studies have been reported to be those who in particular herd, rely more on the expected consensus forecasts than other forecasters. Given that forecasters have no incentive to herd in our study, we conclude that our results indicate that the incorporation of the expected consensus forecast into individual forecasts is most likely due to higher-order expectations.
Subjects:Higher-order expectations
stock market forecasts
forecaster heterogeneity
JEL:G10
G15
G17
Document Type:Working Paper
Appears in Collections:ZEW Discussion Papers
Publikationen von Forscherinnen und Forschern des ZEW

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