Extracting extrapolative beliefs from market prices: An augmented present-value approac

• 成果类型: Article
• 署名作者: Cassella, Stefano; Chen, Te-Feng; Gulen, Huseyin; Liu, Yan
• 署名单位: Tilburg University; Hong Kong Polytechnic University; Purdue University System; Purdue University; Tsinghua University
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2024.103986
• 发表日期: 2025
• 关键词: Present value; structural estimation; expectations; Extrapolation bias; Behavioral; Sentiment; PREDICTIVE REGRESSIONS; Discount rate; Dividend growth

摘要

We propose a latent-variables approach to recover extrapolative beliefs from asset prices. We estimate a present-value model of the price-dividend ratio of the market that embeds both return extrapolation and cash-flow extrapolation, alongside discount rates and rational expectations of dividend growth. This approach allows us to measure extrapolation bias without having to rely on survey data, and it inherently guarantees that the researcher focuses on a set of beliefs that matter for price formation. We show that extrapolative beliefs extracted from prices are highly correlated with surveys and that survey-based and price-based extrapolative beliefs share similar predictive properties for future returns, with the former improving upon the latter.