Not So Great Expectations: An Analysis of Expectation Determinants and the Predictability of Expectation Errors
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CitationNeumann, Miles. 2020. Not So Great Expectations: An Analysis of Expectation Determinants and the Predictability of Expectation Errors. Bachelor's thesis, Harvard College.
AbstractIn this paper, I use novel survey data from the Federal Reserve Bank of New York’s Survey of Consumer Expectations (SCE) to analyze expectations of national inflation, national stock market returns, personal credit access, and personal financial wellbeing to test the rational expectations hypothesis (REH). For each of these variables, I examine the determinants of expectations as well as the predictability of expectation errors. Overall, my results indicate that prior personal experience, prior variable performance, and demographic characteristics can predict errors in expectation of both national and individual variables. Such results are inconsistent with the REH because they imply that information available at time t can be used to predict expectation errors at time t+1. In other words, individuals are predictably biased when forming expectations about the future.
Citable link to this pagehttps://nrs.harvard.edu/URN-3:HUL.INSTREPOS:37364756
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