Expected Inflation, Expected Stock Returns, and Money Illusion: What can we learn from Survey Expectations?

We show empirically that survey-based measures of expected inflation are significant and strong predictors of future aggregate stock returns in several industrialized countries both in-sample and out-of-sample. By empirically discriminating between competing sources of this return predictability by virtue of a comprehensive set of expectations data, we find that money illusion seems to be the driving force behind our results. Another popular hypothesis - inflation as a proxy for aggregate risk aversion - is not supported by the data.Inflation expectations, Money Illusion, Proxy hypothesis, Stock returns

Rendite und Risiko von Carry Trade Strategien auf Devisenmärkten

Carry Trades sind eine seit langem praktizierte, sehr populäre und äußerst profitable Handelsstrategie auf Devisenmärkten. Die hohe durchschnittliche Rendite von Carry Trades bei gleichzeitig vermeintlich nicht übermäßigem Risiko erscheint überraschend, da Carry Trades auf der Annahme systematischer Verletzungen der ungedeckten Zinsparität (UIP) basieren. Neuere theoretische und empirische Arbeiten liefern nun Erklärungsansätze, um die Art der UIP-Verletzungen und das Rendite-Risikoprofil dieser Handelsstrategien besser zu verstehen

Delayed asphyxia due to inhalation injury

We report the case of a 53-year-old man who was found dead in his apartment 2days after a little fire during which he had suffered from second to third degree burns at 2% of the body surface, also involving the skin around the mouth and the nose. At autopsy, severe acute emphysema and mucopurulent obstructive laryngotracheobronchitis were observed. The histology showed desquamative loss of the respiratory epithelium up to the middle bronchi; the bronchial lumen was filled with clumps of mucopurulent secretions mixed with necrotic epithelial cells. The cause of death was a delayed asphyxia due to inhalation injur

Expected inflation, expected stock returns, and money illusion: what can we learn from survey expectations?

We show empirically that survey-based measures of expected inflation are significant and strong predictors of future aggregate stock returns in several industrialized countries both in-sample and out-of-sample. By empirically discriminating between competing sources of this return predictability by virtue of a comprehensive set of expectations data, we find that money illusion seems to be the driving force behind our results. Another popular hypothesis - inflation as a proxy for aggregate risk aversion - is not supported by the data

Carry Trades and Global FX Volatility

We investigate the relation between global FX volatility and the excess returns to carry trade portfolios. We find a significantly negative return co-movement of high interest rate currencies with global volatility, whereas low interest rate currencies provide a hedge against volatility shocks. Our main global FX volatility proxy accounts for more than 90% of the return spread in five carry trade portfolios. Further analyses show that: (i) liquidity risk also matters for excess returns, but to a lesser degree; and that (ii) excess returns are more strongly related to unexpected components of volatility than to expected components. Our results are robust to different proxies for volatility risk, and extend to other cross-sections such as individual currency returns and (some) momentum portfolios.Carry Trade, Volatility, Liquidity, Forward Premium Puzzle

Cash Flow-Predictability: Still Going Strong

The common perception in the literature is that current dividend yields are uninformative about future dividends, but contain some information about future stock returns. In this paper, we show that this finding reverses when looking at a broad panel of countries outside the U.S.. In particular, we demonstrate that aggregate dividend growth rates are highly predictable by the dividend yield and that dividend predictability is clearly stronger than return predictability in medium-sized and smaller countries that account for the majority of countries in the world. We show that this is true both in the time-series dimension (time variation in dividend yields strongly predicts future dividend growth rates) and in the cross-country dimension (sorting countries into portfolios depending on their lagged dividend yield produces a spread in dividend growth rates of more than 20% p.a.). In an economic assessment of this finding, we show that cash flow predictability is stronger in smaller and medium-sized countries because these countries also have more volatile cash flow growth and higher idiosyncratic return volatility

Higher-order beliefs among professional stock market forecasters : some first empirical tests

A sizeable literature reports that financial market analysts and forecasters herd for reputational reasons. Using new data from a large survey of professional forecasters' expectations about stock market movements, we find strong evidence that the expected average of all forecasters' forecasts (the expected consensus forecast) influences an individual forecaster's own forecast. This looks like herding. In our survey, forecasters do not herd for reputational reasons, however. Instead of herding, we suggest that forecasters form higher-order expectations in the spirit of Keynes (1936). We find that young forecasters and portfolio managers, who in previous studies have been reported to be those who in particular herd, rely more on the expected consensus forecasts than other forecasters. Given that forecasters have no incentive to herd in our study, we conclude that our results indicate that the incorporation of the expected consensus forecast into individual forecasts is most likely due to higher-order expectations

Macro expectations, aggregate uncertainty, and expected term premia

Based on individual expectations from the Survey of Professional Forecasters, we construct a real-time proxy for expected term premium changes on long-term bonds. We empirically investigate the relation of these bond term premium expectations with expectations about key macroeconomic variables as well as aggregate macroeconomic uncertainty at the level of individual forecasters. We find that expected term premia are (i) time-varying and reasonably persistent, (ii) strongly related to expectations about future output growth, and (iii) positively affected by uncertainty about future output growth and inflation rates. Expectations about real macroeconomic variables seem to matter more than expectations about nominal factors. Additional findings on term structure factors suggest that the level and slope factor capture information related to uncertainty about real and nominal macroeconomic prospects, and that curvature is related to subjective term premium expectations themselves. Finally, an aggregate measure of forecasters' term premium expectations has predictive power for bond excess returns over horizons of up to one year

Higher-order beliefs among professional stock market forecasters: some first empirical tests

A sizeable literature reports that financial market analysts and forecasters herd for reputational reasons. Using new data from a large survey of professional forecasters' expectations about stock market movements, we find strong evidence that the expected average of all forecasters' forecasts (the expected consensus forecast) influences an individual forecaster's own forecast. This looks like herding. In our survey, forecasters do not herd for reputational reasons, however. Instead of herding, we suggest that forecasters form higher-order expectations in the spirit of Keynes (1936). We find that young forecasters and portfolio managers, who in previous studies have been reported to be those who in particular herd, rely more on the expected consensus forecasts than other forecasters. Given that forecasters have no incentive to herd in our study, we conclude that our results indicate that the incorporation of the expected consensus forecast into individual forecasts is most likely due to higher-order expectations. --Higher-order expectations,stock market forecasts,forecaster heterogeneity

Morphological identification of right ventricular failure in cases of fatal pulmonary thromboembolism

Pulmonary thromboembolism is a life-threatening event potentially determining right ventricular failure. Even if the pathophysiology of this phenomenon has been widely investigated, no morphological demonstration of right ventricular ischemic damage determining right ventricular failure in cases of fatal pulmonary embolism has been reported till now. We performed an immunohistochemical investigation with the markers fibronectin and C5b-9 in 26 cases of fatal pulmonary thromboembolism (16 ♀, 10 ♂, mean age 56.4years), as well as in 25 cases of myocardial infarction (16♀, 9♂, mean age 60.8years) and 20 cases of hanging (3♀, 17♂, mean age 40.8years). In each case, at least one tissue slide from both cardiac ventricles (free wall of the right ventricle, anterior and/or posterior wall of the left ventricle) was prepared. The reactions were semiquantitatively classified and the groups compared. In the study group, the occurrence of ischemic changes at the right ventricle was significantly higher than in cases of myocardial infarction and global hypoxia due to hanging. The determining aspect of the immunohistochemical examination is the identification of the prevalent ischemic lesion at the right ventricle compared to the left one. This may indicate the primary involvement of the right ventricle thus demonstrating a right ventricular failur