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. and the U.K. we explore whether and how people working in the finance industry and laypeople from the general population are influenced by information on other people's forecasts when making forecasts on the future development of two indices and two stocks. We find that (i) laypeople's forecasts are strongly influenced by information they get on other subjects' forecasts, while financial professionals are much less influenced by information signals; (ii) signals by financial professionals influence all subject groups more than forecasts by laypeople; (iii) we observe a home bias in all subject groups, which can be mitigated by information signals; (iv) all subject groups expect lower forecast errors for financial professionals than for laypeople, hence we find evidence for trust in experts.

Impact of overconfidence among finance managers on forecasted market returns: Evidence from India

“…The study further depicted that predictability can be improved by delicately balancing relevant information and noise through moderate filters based on how accurate the forecasts of the past performance have been. Huber, Huber, and Hueber (2019) examined if and how, finance professionals and laypeople from the general population get influenced by receiving additional information on other people's forecasts while making predictions on the future of two stocks and two indices. The findings of the study indicated that the predictions made by laypeople are strongly influenced by information on other people's forecasts whereas finance professionals are not very sensitive to any such information signals.…”