Exceeding Expectations : Economic Forecasts, Anchroing Bias and Stock Returns

By utilizing survey forecasts of macroeconomic statistics, we find that market participants' expectations are not rational as they exhibit an anchoring bias. The forecasts systematically under-predict macroeconomic statistics and the forecast errors are predicted by past macroeconomic announcements. Most importantly, we find that the stock market does not see through this bias, i.e. we find statistically significant stock price effects of anticipated components of macroeconomic announcements. Investors overweigh the importance of historical information and do not make the necessary adjustments after the arrival of new information