Topic: The Term Structure of Return Expectations

Speaker: Cameron Peng, Assistant Professor of Finance, London School of Economics and Political Science

Time: 10:00am-11:30am, December 4

Location: 4-101

Abstract:

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 Biography:

Cameron Peng is an Assistant Professor of Finance at the London School of Economics and Political Science. He received his bachelor degree from Peking University and Ph.D. in Financial Economics from Yale School of Management. Cameron’s research interests include asset pricing, behavioural finance, and household finance. His dissertation studied the price and volume dynamics of financial bubbles, using account-level data during the 2014–2015 Chinese stock market bubble. His current research focuses on how mutual funds affect stock prices through positive feedback trading, how the law of small numbers can shed light on existing puzzles of investor behaviour, and how to link survey results to actual trading behaviour.