beliefs

The Impact of Beliefs on Credit Markets: Evidence from Rating Agencies

We analyze the impact of rating agencies' beliefs on credit markets. We measure their beliefs as the difference between their forecasts of aggregate credit spreads and the consensus. When rating agencies become more optimistic, they issue higher …

Categorical Thinking about Interest Rates

Rational expectations imply that the current long-term interest rate should already incorporate public knowledge of anticipated increases in short rates. Yet, there is a widespread misconception that expected future shifts in the short rate forecast …

Valuation Duration of the Stock Market

At the peak of the tech bubble, only 0.57% of market valuation comes from dividends in the next year. Taking the ratio of total market value to the value of one-year dividends, we obtain a duration of 175 years. In contrast, at the height of the …

Under- and Overreaction in Yield Curve Expectations

I document a robust pattern in how Treasury market participants' yield curve expectations respond to new information: forecasts for short-term rates underreact to news while forecasts for long-term rates overreact. I propose a new explanation of this …

Delegation Uncertainty

Delegation bears an intrinsic form of uncertainty. Investors hire managers for their superior models of asset markets, but delegation outcome is uncertain precisely because managers' model is unknown to investors. We model investors' delegation …