Expectations Formation and Risk in Three Financial Markets: Surveying What the Surveys Say |
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Authors: | Ronald MacDonald |
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Affiliation: | University of Strathclyde |
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Abstract: | This paper attempts to provide a logical overview of the literature which exploits survey data to examine issues of expectations formation and risk aversion in financial markets. Our survey suggests that: short term expectations are excessively volatile and exhibit bandwagon effects, while longer term expectations appear to be regressive and therefore stabilising; in bond and foreign exchange markets the standard result of forward rate biasedness is due in part to time-varying premia; recent research using disaggregate foreign exchange survey data demonstrates the importance of heterogeneous expectations. |
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Keywords: | Estimator performance Sample selection model Two-Part model OLS |
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