In line with Keynes' intuition, volatility in the stock market and in real economic activity are linked by expectations of long term profits. We show that analysts' optimism about the long term earnings growth of S&P 500 firms is associated with a near term boom in major US financial markets,...

We revisit La Porta's (1996) finding that returns on stocks with the most optimistic analyst long term earnings growth forecasts are substantially lower than those for stocks with the most pessimistic forecasts. We document that this finding still holds, and present several further facts about...

We present a model of credit cycles arising from diagnostic expectations – a belief formation mechanism based on Kahneman and Tversky's (1972) representativeness heuristic. In this formulation, when forming their beliefs agents overweight future outcomes that have become more likely in light...

We revisit La Porta's (1996) finding that returns on stocks with the most optimistic analyst long term earnings growth forecasts are substantially lower than those for stocks with the most pessimistic forecasts. We document that this finding still holds, and present several further facts about...

We present a model of credit cycles arising from diagnostic expectations - a belief formation mechanism based on Kahneman and Tversky's (1972) representativeness heuristic. In this formulation, when forming their beliefs agents overweight future outcomes that have become more likely in light of...