National Bureau of Economic Research

The accuracy of investor expectations is fundamental to understanding how efficiently financial markets process information. While extensive research has documented deviations from rational expectations in survey data, quantifying the practical importance of these distortions requires a benchmark of objective beliefs against which subjective expectations can be compared. Without such a measure, it is difficult to assess the extent to which investors systematically misuse available information when forecasting stock returns and corporate earnings.

In The Prestakes of Stock Market Investing (NBER Working Paper 34420), Francesco Bianchi, Do Q. Lee, Sydney C. Ludvigson, and Sai Ma develop a machine learning framework to establish a benchmark ...

The US government has long promoted homeownership through subsidies and tax incentives, viewing it as both socially beneficial and a primary pathway to individual wealth accumulation. For the middle class—those in roughly the middle three-fifths of the wealth distribution—housing wealth remains the most important source of financial security and net worth. Homeownership is also widely believed to provide access to better neighborhoods and higher-quality schools. Yet despite these advantages, homeownership entails significant risks. Homeowners are exposed to housing market downturns that can rapidly erode equity, as well as to income and employment shocks that can compromise their ability to meet mortgage obligations. Such disruptions can lead to delinquency and, in severe cases, the loss of one’s home. Although…

Death rates due to drug poisonings began to surge in the US in the mid-1990s, marking the emergence of an epidemic that has persisted for three decades. The health consequences have been stark, with annual deaths exceeding 100,000 since 2021.

In Prescription for Disaster: The SSDI Rate, Pain, and Prescribing Practices (NBER Working Paper 34265), William N. Evans and Ethan M. J. Lieber examine characteristics of counties in 1990—prior to the surge—that predict the county-level severity of opioid deaths after 2000. After considering a wide range of potential determinants, they focus on one factor: the percentage of the working-age population...

Younger entrepreneurs are disadvantaged in small business loan markets because lenders rely heavily on personal credit scores, which favor long histories of repaying debt. In Modernizing Access to Credit for Younger Entrepreneurs: From FICO to Cash Flow (NBER Working Paper 33367), researchers Christopher M. Hair, Sabrina T. Howell, Mark J. Johnson, and Siena Matsumoto document this fact and show that younger entrepreneurs benefit from underwriting that augments personal credit scores (like FICO) with cash flow data. They analyze comprehensive…