TY  - JOUR
AU  - Ben-David,Itzhak
AU  - Graham,John R.
AU  - Harvey,Campbell R.
TI  - Managerial Miscalibration
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 16215
PY  - 2010
Y2  - July 2010
UR  - http://www.nber.org/papers/w16215
L1  - http://www.nber.org/papers/w16215.pdf
N1  - Author contact info:
Itzhak Ben-David
Fisher College of Business
The Ohio State University
2100 Neil Avenue
Columbus, OH 43210
Tel: 773-988-1353
E-Mail: bendavid@fisher.osu.edu

John Graham
Duke University
Fuqua School of Business
100 Fuqua Drive
Durham, NC 27708-0120
Tel: 919/660-7857
Fax: 919/660-8038
E-Mail: john.graham@duke.edu

Campbell R. Harvey
Duke University
Fuqua School of Business
Durham, NC 27708-0120
Tel: 919/660-7768
Fax: 919/660-8030
E-Mail: cam.harvey@duke.edu
AB  - Miscalibration is a form of overconfidence examined in both psychology and economics. Although it is often analyzed in lab experiments, there is scant evidence about the effects of miscalibration in practice. We test whether top corporate executives are miscalibrated, and study the determinants of their miscalibration. We study a unique panel of over 11,600 probability distributions provided by top financial executives and spanning nearly a decade of stock market expectations. Our results show that financial executives are severely miscalibrated: realized market returns are within the executives’ 80% confidence intervals only 33% of the time. We show that miscalibration improves following poor market performance periods because forecasters extrapolate past returns when forming their lower forecast bound (“worst case scenario”), while they do not update the upper bound (“best case scenario”) as much. Finally, we link stock market miscalibration to miscalibration about own-firm project forecasts and increased corporate investment.
ER  -