International Finance: Career Experiences and Expectations of Professional Forecasters

We examine whether professionals' personal stock-market return experiences affect their return forecasts. To do so, we exploit a unique panel dataset comprising 12 years of monthly stock market expectations issued by 248 financial market professionals from Germany (the ZEW Financial Market Survey). We find that professional forecasters take into account the historical returns they personally experienced during their career when forming their return forecasts. We also find that early career experiences have a stronger impact on professional forecasters' expectations than more recent experiences. Finally, while for returns early experiences are formative for future forecasts, for risk and higher moments, recent experiences are more influential. Recent experienced volatility leads to more pessimistic return forecasts, as do salient return events or downside returns.