Institutions’ Return Expectations Across Assets and Time

We study the equity, cash, and corporate bond risk premium expectations of asset managers, investment consultants, wealth advisors, public pension funds, and professional forecasters. Subjective risk premia vary one-to-one with objective risk premia that are available in real time and countercyclical. Despite their significant time-series variation, several subjective equity premia vary more in the cross-section of institutions than in the time series. This heterogeneity persists both over time and across asset classes. We tie the heterogeneity in subjective equity return expectations to heterogeneous expectations about long-term equity valuations: some institutions believe that the price–earnings ratio behaves like a random walk, whereas others believe in varying degrees of mean reversion.