Finance Seminar with Nicola Gennaioli, Bocconi University
The Department of Finance is proud to announce the upcoming seminar with Nicola Gennaioli, Bocconi University.
Nicola Gennaioli will present:
Belief Overreaction and Stock Market Puzzles
ABSTRACT: We construct an index of long term expected earnings growth for S&P500 firms and show that it has remarkable power to jointly predict errors in these expectations and stock returns, in both the aggregate market and the cross section. The evidence supports a mechanism whereby good news cause investors to become too optimistic about earnings growth, for the market as a whole but especially for specific firms. This leads to inflated stock prices and subsequent low returns in the aggregate and for specific firms in the cross section as these expectations are disappointed. Overreaction of measured long-term expectations helps resolve major asset pricing puzzles without time series or cross-sectional variation in required returns.
Solbjerg Plads 3