The effect of experts’ and laypeople’s forecasts on others’ stock market forecasts

Abstract

With a large-scale online experiment with 1593 participants from the U.S. andthe U.K. we explore whether and how people working in the finance industry andlaypeople from the general population are influenced by information on other people’sforecasts when making forecasts on the future development of two indices andtwo stocks. We find that (i) laypeople’s forecasts are strongly influenced by informationthey get on other subjects’ forecasts, while financial professionals are much lessinfluenced by information signals; (ii) signals by financial professionals influence allsubject groups more than forecasts by laypeople; (iii) we observe a home bias in allsubject groups, which can be mitigated by information signals; (iv) all subject groupsexpect lower forecast errors for financial professionals than for laypeople, hence wefind evidence for trust in experts.

Economic Preferences and Personality Traits Among Finance Professionals and the General Population

“…Most studies on finance professionals' behavior only focus on one particular behavioral bias or a single economic preference dimension (see, e.g., Glaser et al, 2005;Haigh and List, 2005;Alevy et al, 2007;Gilad and Kliger, 2008;Kaustia et al, 2008;Cohn et al, 2014;Pikulina et al, 2017;Kirchler et al, 2018;Huber et al, 2019;Holzmeister et al, 2020b). These studies usually do not account for socio-economic background characteristics of finance professionals that could potentially drive much of the variation between finance professionals and other subject pools like students or the general population.…”