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Discussion Paper
Do CFOs Think Investment is Sensitive to Interest Rules?
This piece presents results from ongoing research that takes a new look at the sensitivity of a business's capital expenditures to changes in interest rates.
Working Paper
Predicting Analysts’ S&P 500 Earnings Forecast Errors and Stock Market Returns using Macroeconomic Data and Nowcasts
This study scrutinizes the quality of “bottom-up” forecasts of near-term S&P 500 Composite earnings, derived by aggregating analysts’ forecasts for individual firm-level earnings. We examine whether forecasts are broadly consistent with current macroeconomic conditions reflected in economists’ near-term outlook and other available data. To the contrary, we find that a simple macroeconomic model of aggregate S&P 500 earnings, coupled with GDP forecasts from the Blue Chip Survey and recent dollar exchange rate movements, can predict large and statistically significant errors in equity ...
Working Paper
Stock prices, expected returns, and inflation
This paper examines the effect of expected inflation on stock prices and expected long-run returns. An ex ante estimates measure of expected long-run returns is derived by incorporating estimates of expected of future corporate cash flows into a variant of the Campbell-Shiller dividend-price ratio model. In this model, the log earnings-price ratio is expressed as a linear function of expected future returns, expected earnings growth rates, and the log of the current dividend-payout ratio. Expectations of earnings growth are inferred from equity analysts' earnings forecasts, while inflation ...
Working Paper
Anchoring bias in consensus forecasts and its effect on market prices
Previous empirical studies that test for the "rationality" of economic and financial forecasts generally test for generic properties such as bias or autocorrelated errors, and provide limited insight into the behavior behind inefficient forecasts. In this paper we test for a specific behavioral bias -- the anchoring bias described by Tversky and Kahneman (1974). In particular, we examine whether expert consensus forecasts of monthly economic releases from Money Market Services surveys from 1990-2006 have a tendency to be systematically biased toward the value of previous months' data ...
Working Paper
Do nonfinancial firms use interest rate derivatives to hedge?
We compile and analyze detailed information on the debt structure and interest rate derivative positions of nonfinancial firms in 2000 and 2002. We find that differences in debt structure across firms and time tend to be counterbalanced by difference in derivative positions. In particular, among derivative users, smaller firms tend to have relatively more interest rate exposure from liabilities than larger firms and tend to use derivatives that offset these exposures. Larger firms also tend to limit their interest rate exposures, but they do so through their choice of debt structure rather ...