Macroeconomic models that are based on either the rational expectations hypothesis (REH) or behavioral considerations share a core premise: All future market outcomes can be characterized ex ante with a single overarching probability distribution. This paper assesses the empirical relevance of...

Macroeconomic models that are based on either the rational expectations hypothesis (REH) or behavioral considerations share a core premise: all future market outcomes can be characterized ex ante with a single overarching probability distribution. This paper assesses the empirical relevance of...

Shiller (1981) and others have shown that the quantitative predictions of the REH present-value model are inconsistent with time-series data on stock prices and dividends. In this paper, we assess the empirical relevance of the model without explicitly representing how a rational market...

We reveal a novel channel through which market participants' sentiment influences how they forecast stock returns: their optimism (pessimism) affects the weights they assign to fundamentals. Our analysis yields four main findings. First, if good (bad) “news” about dividends and interest...

This study introduces a novel index based on expectations concordance for explaining stock-price volatility when historically unique events cause unforeseeable change and Knightian uncertainty in the process driving outcomes. Expectations concordance measures the degree to which non-repetitive...