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Diagnostic Expectations and Stock Returns
[report]
2017
unpublished
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 the joint dynamics of fundamentals, expectations, and returns for these portfolios. We explain these facts using a new model of belief formation based on a portable formalization of the representativeness
doi:10.3386/w23863
fatcat:sxza3j2jlzcedg2ljfvdj26l7y