Work

What Goes Up Must Come Down? Experimental Evidence on Intuitive Forecasting

Year: 2013

Type: article

Abstract: Do laboratory subjects correctly perceive the dynamics of a mean-reverting time series? In our experiment, subjects receive historical data and make forecasts at different horizons. The time series process that we use features short-run momentum and long-run partial mean reversion. Half of the subjects see a version of this process in which the momentum and partial mean reversion unfold over 10 periods ('fast'), while the other subjects see a version with dynamics that unfold over 50 periods ('slow'). Typical subjects recognize most of the mean reversion of the fast process and none of the mean reversion of the slow process.

Source: American Economic Review

DOI: 10.1257/aer.103.3.570

Authors: John Beshears, James J Choi, Andreas Fuster, David Laibson, Brigitte C Madrian

Institutions: Stanford University, Yale University, Federal Reserve Bank of New York, Harvard University

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

Funder: National Institute on Aging

Awards: Accumulation and Decumulation in Retirement Savings Plans, Understanding and Improving Healthcare Decision-Making and Outcomes for People Living with Alzheimer's Disease and Related Dementias, NBER Roybal Center for Behavior Change in Health