Monday, October 31, 2011 8:38pm

Stock Prices

Question A: Unless they have inside information, very few investors, if any, can consistently make accurate predictions about whether the price of an individual stock will rise or fall on a given day.

Responses
 

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Responses weighted by each expert's confidence

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Question B: Plausible expectations of future dividends, discounted using a plausible risk-adjusted interest rate, explain well the level of stock prices for recently listed internet businesses in 1999.  

Responses
 

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Responses weighted by each expert's confidence

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Question A Participant Responses

Participant University Vote Confidence Comment Bio/Vote History
Acemoglu Daron Acemoglu MIT Agree 4
Bio/Vote History
         
Altonji Joseph Altonji Yale Strongly Agree 9
Bio/Vote History
         
Auerbach Alan Auerbach Berkeley Strongly Agree 8
Bio/Vote History
         
Autor David Autor MIT Strongly Agree 8
Experts are generally no better than the rest of us -- often worse.
Bio/Vote History
         
Baicker Katherine Baicker Harvard Strongly Agree 5
Bio/Vote History
         
Banerjee Abhijit Banerjee MIT --- ---
---
Bio/Vote History
Joined 11/2013 Strongly Agree 1
 
Bertrand Marianne Bertrand Chicago Agree 5
Bio/Vote History
         
Brunnermeier Markus Brunnermeier Princeton --- ---
---
Bio/Vote History
Joined 11/2013 Uncertain 6
It might be possible to predict future price movements, but in these cases it is often risky or expensive take on such a position.
 
Chetty Raj Chetty Harvard Strongly Agree 7
Bio/Vote History
         
Chevalier Judith Chevalier Yale Agree 8
There is short run predictability but consistently on a given day is a high standard.
Bio/Vote History
         
Currie Janet Currie Princeton Agree 8
Bio/Vote History
         
Cutler David Cutler Harvard Agree 3
I suspect 'very few' is an important qualifier.
Bio/Vote History
         
Deaton Angus Deaton Princeton Agree 7
Provided "very few" includes the minority of hedge fund traders who clearly can.
Bio/Vote History
         
Duffie Darrell Duffie Stanford Strongly Agree 9
Despite attempts, there is no solid empirical evidence or convincing theoretical support for the contrary view.
Bio/Vote History
         
Edlin Aaron Edlin Berkeley Strongly Agree 10
Randomness is the best ex ante explanation of a given stock's movement on a given day.
-see background information here
Bio/Vote History
         
Eichengreen Barry Eichengreen Berkeley Agree 7
Bio/Vote History
         
Einav Liran Einav Stanford --- ---
---
Bio/Vote History
Joined 11/2013 Strongly Agree 7
 
Fair Ray Fair Yale Strongly Agree 10
Bio/Vote History
         
Finkelstein Amy Finkelstein MIT --- ---
---
Bio/Vote History
Joined 11/2013 Strongly Agree 8
 
Goldberg Pinelopi Goldberg Yale Strongly Agree 8
Bio/Vote History
         
Goldin Claudia Goldin Harvard Agree 2
If even a few could predict that well then there would be little volatility and these "geniuses" would be very rich.
Bio/Vote History
         
Goolsbee Austan Goolsbee Chicago Strongly Agree 10
We have at least 10,000 research papers establishing this one as a fact
Bio/Vote History
         
Greenstone Michael Greenstone Chicago Strongly Agree 8
Bio/Vote History
         
Hall Robert Hall Stanford Strongly Agree 8
Bio/Vote History
         
Hart Oliver Hart Harvard --- ---
---
Bio/Vote History
Joined 11/2013 Strongly Agree 10
I think that markets are efficient enough that accurate short-term predictions are impossible
 
Holmström Bengt Holmström MIT Agree 8
Answer assumes that no public information is unaccounted for, because stock market is closed.
Bio/Vote History
         
Hoxby Caroline Hoxby Stanford Did Not Answer
Bio/Vote History
         
Hoynes Hilary Hoynes Berkeley --- ---
---
Bio/Vote History
Joined 11/2013 Strongly Agree 8
Information as to current and future profitability are captured in current prices.
 
Judd Kenneth Judd Stanford Strongly Agree 8
This is the conclusion of the empirical evidence I have seen.
Bio/Vote History
         
Kaplan Steven Kaplan Chicago --- ---
---
Bio/Vote History
Joined 11/2013 Strongly Agree 10
 
Kashyap Anil Kashyap Chicago Strongly Agree 10
Everyone should have to read Ken French's Presidential Address to the American Finance Association on the perils of active investing.
-see background information here
Bio/Vote History
         
Klenow Pete Klenow Stanford Strongly Agree 5
Predictable anomalies are surely a small part of daily variance. Long term predictability seems greater (Campbell-Shiller).
-see background information here
Bio/Vote History
         
Lazear Edward Lazear Stanford Strongly Agree 8
Markets may be far from perfect, but the literature supports that the current price is the best predictor of tomorrow's price.
Bio/Vote History
         
Levin Jonathan Levin Stanford Agree 3
Hard one to answer - probably depends on interpretation of "very few" and "consistently".
Bio/Vote History
         
Maskin Eric Maskin Harvard Agree 8
Predicting how individual stocks will behave is notoriously difficult.
Bio/Vote History
         
Nordhaus William Nordhaus Yale Agree 7
Tough question because of details. But yes. This is well studied and subject to small, low-yield, and transient anomalies.
Bio/Vote History
         
Obstfeld Maurice Obstfeld Berkeley Strongly Agree 8
The evidence supports this claim, though one can't infer that stock prices always equal reasonable forecasts of discounted future dividends.
Bio/Vote History
         
Rouse Cecilia Rouse Princeton Agree 8
The informational requirements are too high given the many factors and random shocks that can occur on any given day.
Bio/Vote History
         
Saez Emmanuel Saez Berkeley Agree 6
Bio/Vote History
         
Samuelson Larry Samuelson Yale --- ---
---
Bio/Vote History
Joined 11/2013 Strongly Agree 1
 
Scheinkman José Scheinkman Princeton Agree 9
Bio/Vote History
         
Schmalensee Richard Schmalensee MIT Strongly Agree 9
The evidence on this one seems overwhelming.
Bio/Vote History
         
Shapiro Carl Shapiro Berkeley --- ---
---
Bio/Vote History
Joined 11/2013 Strongly Agree 9
Investment based on fundamentals does not give information about high-frequency price movements.
 
Shimer Robert Shimer Chicago --- ---
---
Bio/Vote History
Joined 11/2013 Strongly Agree 7
 
Shin Hyun Song Shin Princeton Strongly Agree 10
Bio/Vote History
         
Stock James Stock Harvard Strongly Agree 7
Bio/Vote History
         
Stokey Nancy Stokey Chicago Agree 9
Bio/Vote History
         
Thaler Richard Thaler Chicago Did Not Answer
Bio/Vote History
         
Udry Christopher Udry Yale Strongly Agree 8
There may be rare moments when movements of specific stocks are predictable, but these are fleeting and will yield profit to only a few.
Bio/Vote History
         
Zingales Luigi Zingales Chicago Strongly Agree 8
Bio/Vote History
         

Question B Participant Responses

Participant University Vote Confidence Comment Bio/Vote History
Acemoglu Daron Acemoglu MIT Uncertain 1
Bio/Vote History
         
Altonji Joseph Altonji Yale Strongly Disagree 9
Bio/Vote History
         
Auerbach Alan Auerbach Berkeley Disagree 7
Bio/Vote History
         
Autor David Autor MIT Strongly Disagree 9
We were in a bubble. There were not enough future profits in the world to justify those prices.
Bio/Vote History
         
Baicker Katherine Baicker Harvard No Opinion
Bio/Vote History
         
Banerjee Abhijit Banerjee MIT --- ---
---
Bio/Vote History
Joined 11/2013 Strongly Disagree 1
I think everyone was speculating about tail events--who will win the jackpot.
 
Bertrand Marianne Bertrand Chicago Disagree 5
Bio/Vote History
         
Brunnermeier Markus Brunnermeier Princeton --- ---
---
Bio/Vote History
Joined 11/2013 Strongly Disagree 9
For a single stock one might be able to justify the high prices, but not for all internet stocks as a group or on average.
 
Chetty Raj Chetty Harvard Disagree 4
Bio/Vote History
         
Chevalier Judith Chevalier Yale Disagree 7
The definition of plausibly is part of the issue---
Bio/Vote History
         
Currie Janet Currie Princeton No Opinion
This is not my area of expertise.
Bio/Vote History
         
Cutler David Cutler Harvard Disagree 3
Ex post events suggest otherwise.
Bio/Vote History
         
Deaton Angus Deaton Princeton Strongly Disagree 6
You mean there was no bubble?
Bio/Vote History
         
Duffie Darrell Duffie Stanford Uncertain 9
Expected cash flows were hard to estimate. See Pastor and Veronesi. An ex ante (1999) poll would be very interesting!
-see background information here
Bio/Vote History
         
Edlin Aaron Edlin Berkeley Strongly Disagree 10
Are we still arguing over whether the internet bubble was a bubble? I thought it was at the time and have never thought otherwise.
Bio/Vote History
         
Eichengreen Barry Eichengreen Berkeley Disagree 6
Bio/Vote History
         
Einav Liran Einav Stanford --- ---
---
Bio/Vote History
Joined 11/2013 Disagree 7
 
Fair Ray Fair Yale Strongly Disagree 8
Bio/Vote History
         
Finkelstein Amy Finkelstein MIT --- ---
---
Bio/Vote History
Joined 11/2013 No Opinion
 
Goldberg Pinelopi Goldberg Yale Strongly Disagree 8
Bio/Vote History
         
Goldin Claudia Goldin Harvard Disagree 2
The Q is still oddly worded, but appears to ask whether the dot.com bubble was a bubble. I guess I think it was.
Bio/Vote History
         
Goolsbee Austan Goolsbee Chicago Strongly Disagree 10
? We know that there was a bubble and most of them went out of business.
Bio/Vote History
         
Greenstone Michael Greenstone Chicago Disagree 9
It is always easiest to make these judgments ex post, which of course, undermines their meaning.
Bio/Vote History
         
Hall Robert Hall Stanford Uncertain 8
Turns on the interpretation of "plausible." My Ely Lecture made the case that eBay's valuation satisfied a plausible discounted div model.
-see background information here
Bio/Vote History
         
Hart Oliver Hart Harvard --- ---
---
Bio/Vote History
Joined 11/2013 Disagree 8
There was/is a lot of irrational exuberance about internet companies
 
Holmström Bengt Holmström MIT Uncertain 7
Bio/Vote History
         
Hoxby Caroline Hoxby Stanford Did Not Answer
Bio/Vote History
         
Hoynes Hilary Hoynes Berkeley --- ---
---
Bio/Vote History
Joined 11/2013 Uncertain 4
 
Judd Kenneth Judd Stanford Uncertain 4
"Plausible" is a fuzzy term. Asset pricing theories concern averages, not events. If a 10-1 horse wins, does that mean the odds were wrong?
Bio/Vote History
         
Kaplan Steven Kaplan Chicago --- ---
---
Bio/Vote History
Joined 11/2013 Strongly Disagree 8
 
Kashyap Anil Kashyap Chicago Disagree 7
Never could figure out how pets.com, webvan and various other dotcoms could have ever made money.
Bio/Vote History
         
Klenow Pete Klenow Stanford Strongly Disagree 5 Bio/Vote History
         
Lazear Edward Lazear Stanford Uncertain 5
In cases where ex post, something turns out to be a bubble, it is tough to say that ex ante expectations were plausible.
Bio/Vote History
         
Levin Jonathan Levin Stanford Disagree 3
Bio/Vote History
         
Maskin Eric Maskin Harvard Disagree 8
In 1999 the dot com bubble was in full swing; stock prices didn't reflect fundamentals very well for newly listed companies.
Bio/Vote History
         
Nordhaus William Nordhaus Yale Strongly Disagree 7
Even at the time, it was clear that these firms would have to earn most of GDP to rationalize their stock prices.
Bio/Vote History
         
Obstfeld Maurice Obstfeld Berkeley Disagree 8
This episode was a classic case of contagious overoptimism.
Bio/Vote History
         
Rouse Cecilia Rouse Princeton Disagree 7
This is but one interpretation; a bubble would be another....
Bio/Vote History
         
Saez Emmanuel Saez Berkeley Disagree 5
Bio/Vote History
         
Samuelson Larry Samuelson Yale --- ---
---
Bio/Vote History
Joined 11/2013 Uncertain 1
It is too difficult to assess ex ante plausible expectations and risk attitudes to make this evaluation.
 
Scheinkman José Scheinkman Princeton Disagree 8
Bio/Vote History
         
Schmalensee Richard Schmalensee MIT Strongly Disagree 5
I haven't seen an analysis of this for dot.coms in aggregate, but many of their valuations were truly nutty.
Bio/Vote History
         
Shapiro Carl Shapiro Berkeley --- ---
---
Bio/Vote History
Joined 11/2013 Strongly Disagree 9
The numbers just don't square. Prices were based on growth prospects, but not "plausible" ones.
 
Shimer Robert Shimer Chicago --- ---
---
Bio/Vote History
Joined 11/2013 Uncertain 5
There were plausible arguments for the valuations in 1999, if not necessarily the most plausible arguments.
-see background information here
 
Shin Hyun Song Shin Princeton Disagree 5
Bio/Vote History
         
Stock James Stock Harvard Disagree 6
Bio/Vote History
         
Stokey Nancy Stokey Chicago Disagree 6
Asset prices are extremely volatile, and "explaining" this fact as variations in the price of risk seems close to tautological.
Bio/Vote History
         
Thaler Richard Thaler Chicago Did Not Answer
Bio/Vote History
         
Udry Christopher Udry Yale Disagree 7
The key is to define "plausible expectations". It is likely that widespread overconfidence contributed to the price rise.
Bio/Vote History
         
Zingales Luigi Zingales Chicago Strongly Disagree 8
Bio/Vote History
         

10 New Economic Experts join the IGM Panel


For the past two years, our expert panelists have been informing the public about the extent to which economists agree or disagree on important public policy issues. This week, we are delighted to announce that we are expanding the IGM Economic Experts Panel to add ten new distinguished economists. Like our other experts, these new panelists have impeccable qualifications to speak on public policy matters, and their names will be familiar to other economists and the media.

To give the public a broad sense of their views on policy issues, each new expert has responded to a selection of 16 statements that our panel had previously addressed. We chose these 16 statements, which cover a wide range of important policy areas, because the original panelists' responses to them were analyzed in a paper comparing the views of our economic experts with those of the American public. You can find that paper, by Paola Sapienza and Luigi Zingales, here. The paper, along with other analyses of the experts' views, was discussed during the American Economic Association annual meetings, and the video can be found here.

The new panelists' responses to these statements can be seen on their individual voting history pages. Our ten new economic experts are:

Abhijit Banerjee (MIT)
Markus K. Brunnermeier (Princeton)
Liran Einav (Stanford)
Amy Finkelstein (MIT)
Oliver Hart (Harvard)
Hilary Hoynes (Berkeley)
Steven N. Kaplan (Chicago)
Larry Samuelson (Yale)
Carl Shapiro (Berkeley)
Robert Shimer (Chicago)


Please note that, for the 16 previous topics on which these new panelists have voted, we left the charts showing the distribution of responses unchanged. Those charts reflect the responses that our original panelists gave at the time, and we have not altered them to reflect the views of the new experts.

We have also taken this opportunity to ask our original panelists whether they would vote differently on any of the statements we have asked about in the past. Several experts chose to highlight statements to which they would currently respond differently. In such cases, you will see this "revote" below the panelist's original vote. We think you will enjoy seeing examples of statements on which some experts have reconsidered.

As with the 16 previous statements voted on by new panelists, these "revote" responses are not reflected in the chart that we display showing the distribution of views for that topic: all the charts for previous questions reflect the distribution of views that the experts expressed when the statement was originally posed.

About the IGM Economic Experts Panel

This panel explores the extent to which economists agree or disagree on major public policy issues. To assess such beliefs we assembled this panel of expert economists. Statistics teaches that a sample of (say) 40 opinions will be adequate to reflect a broader population if the sample is representative of that population.

To that end, our panel was chosen to include distinguished experts with a keen interest in public policy from the major areas of economics, to be geographically diverse, and to include Democrats, Republicans and Independents as well as older and younger scholars. The panel members are all senior faculty at the most elite research universities in the United States. The panel includes Nobel Laureates, John Bates Clark Medalists, fellows of the Econometric society, past Presidents of both the American Economics Association and American Finance Association, past Democratic and Republican members of the President's Council of Economics, and past and current editors of the leading journals in the profession. This selection process has the advantage of not only providing a set of panelists whose names will be familiar to other economists and the media, but also delivers a group with impeccable qualifications to speak on public policy matters.

Finally, it is important to explain one aspect of our voting process. In some instances a panelist may neither agree nor disagree with a statement, and there can be two very different reasons for this. One case occurs when an economist is an expert on a topic and yet sees the evidence on the exact claim at hand as ambiguous. In such cases our panelists vote "uncertain". A second case relates to statements on topics so far removed from the economist's expertise that he or she feels unqualified to vote. In this case, our panelists vote "no opinion".

The Economic Experts Panel questions are emailed individually to the members of the panel, and each responds electronically at his or her convenience. Panelists may consult whatever resources they like before answering.

Members of the public are free to suggest questions (see link below), and the panelists suggest many themselves. Members of the IGM faculty are responsible for deciding the final version of each week’s question. We usually send a draft of the question to the panel in advance, and invite them to point out problems with the wording if they see any. In response, we typically receive a handful of suggested clarifications from individual experts. This process helps us to spot inconsistencies, and to reduce vagueness or problems of interpretation.

The panel data are copyrighted by the Initiative on Global Markets and are being analyzed for an article to appear in a leading peer-reviewed journal.

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