WE EXPECT STOCKS TO RISE, BUT WE DO NOT KNOW WHEN AND WHICH ONES: EXCESSIVE OPTIMISM IN PREDICTING FUTURE STOCK INDICES RETURNS

• Authors: Grežo Matúš
• Languages of publication: EN

Abstracts

EN

In this study, we analyse whether: 1) financial professionals manifest lower excessive optimism in predicting future stock indices returns; 2) excessive optimism occurs more when predicting future returns of indices reporting profits than indices reporting losses 3) more long-term predictions are more optimistic than short-term predictions. Three groups of participants (n = 251) – investment managers, financial advisors, and lay men predicted future returns of six stock indices in three forecasting horizons by estimating the 95% confidence intervals. The results showed a high inaccuracy in all three groups. The most accurate group was a group of investment managers, followed by lay men and advisors. We also found that 93% of all incorrect predictions were over-optimistic and excessive optimism was much higher when forecasting stock indices that reported profits in the recent past. The results of this research did not confirm previous findings about inverse effect of expertise in predicting future returns of financial assets.

Keywords

EN

EXCESSIVE OPTIMISM; FINANCIAL PROFESSIONALS; FORECASTING; STOCK INDICES

• Publisher: Institute of Experimental Psychology, Slovak Academy of Sciences
• Journal: Studia Psychologica
• Year: 2017
• Volume: 59
• Issue: 2
• Pages: 113 – 126

Contributors

author

Grežo Matúš

• Institute of Experimental Psychology, Centre of Social and Psychological Sciences SAS, Dúbravská cesta 9, 84104 Bratislava, Slovak Republic