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Horizon bias and the term structure of equity returns
Cassella,Stefano Golez,Benjamin Gulen,H. Kelly,Peter
Cassella,Stefano
Golez,Benjamin
Gulen,H.
Kelly,Peter
Abstract
We label the degree to which individuals are more optimistic at long horizons relative to short horizons as the horizon bias. We examine whether time-series variation in the horizon bias can explain the time-series variation in the equity term structure. We use analyst earnings forecasts to measure the degree of the horizon bias in the stock market. Consistent with the intuition from a stylized present value model, we find that periods of above-average horizon bias are associated with negative term premiums, whereas periods of below-average horizon bias are associated with positive term premiums.
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Publisher Copyright: © 2022 The Author(s). Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved.
Date
2023-03
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62509870.pdf
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G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates, G41 - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
Citation
Cassella, S, Golez, B, Gulen, H & Kelly, P 2023, 'Horizon bias and the term structure of equity returns', Review of Financial Studies, vol. 36, no. 3, pp. 1253-1288. https://doi.org/10.1093/rfs/hhac032