NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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"Superstitious" Investors

Hongye Guo, Jessica A. Wachter

NBER Working Paper No. 25603
Issued in February 2019
NBER Program(s):The Asset Pricing Program

We consider an economy in which investors believe dividend growth is predictable, when in reality it is not. We show that these beliefs lead to excess volatility and return predictability. We also show that these beliefs are rational in the face of evidence on dividend growth. We apply this framework to explaining the value premium, predictability of bond returns, and the violation of uncovered interest rate parity.

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Document Object Identifier (DOI): 10.3386/w25603

 
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