Keywords
mean reversion, forecasting behavior, time series perception
Abstract
Do laboratory subjects correctly perceive the dynamics of a mean-reverting time series? In our experiment, subjects receive historical data and make forecasts at different horizons. The time series process that we use features short-run momentum and long-run partial mean reversion. Half of the subjects see a version of this process in which the momentum and partial mean reversion unfold over 10 periods (‘fast’), while the other subjects see a version with dynamics that unfold over 50 periods (‘slow’). Typical subjects recognize most of the mean reversion of the fast process and none of the mean reversion of the slow process.
Original Publication Citation
“What Goes Up Must Come Down? Experimental Evidence on Intuitive Forecasting.” 2013. American Economic Review Papers and Proceedings 103(3): 570-74 (with John Beshears, James J. Choi, Andreas Fuster and David Laibson). http://dx.doi.org/10.1257/aer.103.3.570
BYU ScholarsArchive Citation
Beshears, John; Choi, James J.; Fuster, Andreas; Laibson, David; and Madrian, Brigitte C., "What Goes Up Must Come Down? Experimental Evidence on Intuitive Forecasting" (2013). Faculty Publications. 9039.
https://scholarsarchive.byu.edu/facpub/9039
Document Type
Peer-Reviewed Article
Publication Date
2013
Publisher
American Economic Review Papers and Proceedings
Language
English
College
Marriott School of Business
Department
Finance
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