Cover: Stock Price Expectations and Stock Trading

Stock Price Expectations and Stock Trading

Published Jul 20, 2012

by Michael D. Hurd, Susann Rohwedder

Download eBook for Free

FormatFile SizeNotes
PDF file 0.4 MB

Use Adobe Acrobat Reader version 10 or higher for the best experience.

The fact that many individuals inexplicably fail to buy stocks, despite the historical evidence for a good return on investment has been referred to as the stock market puzzle. However, measurements of the subjective probability of a gain show that people are more pessimistic than historical outcomes would suggest. Further, expectations of future stock price increases apparently depend on old information, which would seem to be at odds with rational expectations in the context of efficient markets. To shed light on these apparent paradoxes, the authors analyzed the relationships between actual stock market price changes and the subjective probability of price changes, and between the subjective probability of price changes and the likelihood of engaging in stock trading.

This paper series was made possible by the NIA funded RAND Center for the Study of Aging and the NICHD funded RAND Population Research Center.

This report is part of the RAND working paper series. RAND working papers are intended to share researchers' latest findings and to solicit informal peer review. They have been approved for circulation by RAND but may not have been formally edited or peer reviewed.

This document and trademark(s) contained herein are protected by law. This representation of RAND intellectual property is provided for noncommercial use only. Unauthorized posting of this publication online is prohibited; linking directly to this product page is encouraged. Permission is required from RAND to reproduce, or reuse in another form, any of its research documents for commercial purposes. For information on reprint and reuse permissions, please visit www.rand.org/pubs/permissions.

RAND is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.