Equity Return Expectations and Portfolios: Evidence From Large Asset Managers

Magnus Dahlquist*, Markus Ibert

*Corresponding author for this work

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Collecting large asset managers’ capital market assumptions, we revisit the relationships between subjective equity premium expectations, equity valuations, and financial portfolios. In contrast to the well-documented extrapolative expectations of retail investors, asset managers’ equity premium expectations are countercyclical: they are high (low) when valuations are low (high). We find that asset managers’ portfolios reflect their heterogeneous expectations: allocation funds of asset managers with larger U.S. equity premium expectations invest significantly more in U.S. equities. The sensitivity of portfolios to expectations seems to be muted by investment mandates and is smaller than the one predicted by a standard portfolio choice model.
Original languageEnglish
Article numberhhae008
JournalReview of Financial Studies
Issue number6
Pages (from-to)1887-1928
Number of pages42
Publication statusPublished - Jun 2024

Bibliographical note

Published online: 06 March 2024.

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