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Title: Using equity premium survey data to estimate future wealth
Authors: Freeman, Mark
Groom, Ben
Keywords: Asset allocation
Equity premium
Financial surveys
Gamma distribution
Issue Date: 2015
Publisher: © Springer Science+Business Media
Citation: FREEMAN, M. and GROOM, B., 2015. Using equity premium survey data to estimate future wealth. Review of Quantitative Finance and Accounting, 45(4), pp.665-693.
Abstract: We present the first systematic methods for combining different experts' responses to equity premium surveys. These techniques are based on the observation that the survey data are approximately gamma distributed. This distribution has convenient analytical properties that enable us to address three important problems that investment managers must face. First, we construct probability density functions for the future values of equity index tracker funds. Second, we calculate unbiased and minimum least square error estimators of the future value of these funds. Third, we derive optimal asset allocation weights between equities and the risk-free asset for risk-averse investors. Our analysis allows for both herding and biasedness in expert responses. We show that, unless investors are highly uncertain about expert biases or forecasts are very highly correlated, many investment decisions can be based solely on the mean of the survey data minus any expected bias. We also make recommendations for the design of future equity premium surveys.
Description: This article was published in the journal, Review of Quantitative Finance and Accounting. The final publication is available at Springer via http://dx.doi.org/10.1007/s11156-014-0451-7
Version: Accepted for publication
DOI: 10.1007/s11156-014-0451-7
URI: https://dspace.lboro.ac.uk/2134/16718
Publisher Link: http://dx.doi.org/10.1007/s11156-014-0451-7
ISSN: 0924-865X
Appears in Collections:Published Articles (Business School)

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