Title: New Tests of Expectation Formation with Applications to Asset Pricing Models

Speaker: Tongbin Zhang, Shanghai University of Finance and Economics

Time: March 15th, 2019 13:30–14:45

Venue: Conference Room 106B, Zhonghui Building (IESR, JNU College of Economics)

About the speaker:

Tongbin Zhang received his Ph.D. from the Universitat Autonoma de Barcelona, Spain and joined Shanghai University of Finance and Economics as Assistant Professor of Economics in 2017. He obtained B.A. in Finance from the Zhejiang Gongshang University, and M.A. in Economics from the Shanghai University of Finance and Economics. Tongbin Zhang's research field focuses on macroeconomic and financial economics, specifically on the role of expectation in asset pricing.

Abstract:

The paper develops new tests of expectation formation which are generally applicable in financial and macroeconomic models. The tests utilize cointegration restrictions among forecasts of model variables. Survey data suggests forecasts of stock prices are not cointegrated with forecasts of consumption and rejects this aspect of the formation of stock price expectations in a wide range of asset pricing models, including rational expectations and various learning or sentiment-based models. We show adding sentiment (or judgment) directly to subjective stock price forecasts can reconcile equity pricing models with the new survey evidence.