Subjective Beliefs and Portfolio Choice: Evidence from Financial Advisors
"Subjective Beliefs and Portfolio Choice: Evidence from Financial Advisors", Cynthia Balloch and Cameron Peng.
Abstract:
We survey financial advisors to elicit their subjective beliefs about asset returns and the macroeconomy. Our bespoke survey design captures both short-term and long-term return expectations for multiple asset classes, as well as the minimum acceptable rate of return. This allows us to decompose return expectations into two subjective components: required returns and excess returns (alpha). These two components play distinct roles in explaining belief heterogeneity: required returns drive variation in long-term expectations, while excess returns dominate short-term expectations. By linking survey responses to the portfolios managed by the same advisors, we further demonstrate that portfolio decisions are more sensitive to excess returns than to required returns.