How Accurate Are Survey Forecasts on the Market?

In this paper, we provide a novel performance analysis of three widely used survey forecasts by investigating how well they predict the stock market. Judging by their out-of-sample $R^2$s, a standard measure in the market predictability literature, we find that none of the survey forecasts outperforms a simple random walk forecast, which predicts the future returns simply by their past sample mean. In addition, we find that the surveys are not very informative about investor's attitudes toward risk. Our study raises important questions on how to safeguard the use of the survey forecasts and how to properly interpret the results from the large literature that relies on the survey forecasts. On the other hand, we show that naive Bayesian macroeconomic learning can outperform the random walk model, suggesting that the expectation of an AI robot can potentially be more important and deserve more attention than survey forecasts.

Keywords: Subjective belief, Livingston Survey, CFO Survey, Michigan Survey of Consumers

JEL Classification: G11, G17

Suggested Citation: Suggested Citation

He, Songrun and Li, Jiaen and Zhou, Guofu, How Accurate Are Survey Forecasts on the Market? (March 15, 2023). Available at SSRN: https://ssrn.com/abstract=4390165 or http://dx.doi.org/10.2139/ssrn.4390165