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Expectations Formation and Risk in Three Financial Markets: Surveying What the Surveys Say
Author(s) -
MacDonald Ronald
Publication year - 2000
Publication title -
journal of economic surveys
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.657
H-Index - 92
eISSN - 1467-6419
pISSN - 0950-0804
DOI - 10.1111/1467-6419.00105
Subject(s) - bandwagon effect , economics , foreign exchange , exchange rate , survey data collection , financial market , bond , exploit , risk premium , term (time) , risk aversion (psychology) , financial economics , foreign exchange risk , foreign exchange market , monetary economics , econometrics , finance , expected utility hypothesis , statistics , physics , mathematics , computer security , quantum mechanics , political science , computer science , law
This paper attempts to provide a logical overview of the literature which exploits survey data to examine issues of expectations formation and risk aversion in financial markets. Our survey suggests that: short term expectations are excessively volatile and exhibit bandwagon effects, while longer term expectations appear to be regressive and therefore stabilising; in bond and foreign exchange markets the standard result of forward rate biasedness is due in part to time‐varying premia; recent research using disaggregate foreign exchange survey data demonstrates the importance of heterogeneous expectations.