Abstract Studies analyzing return expectations of financial market participants like fund managers, CFOs or individual investors are highly influential in academia and practice. We argue and show that the results in these surveys above are easily influenced by the elicitation mode of return expectations. Surveys that ask for future stock price levels are more likely to produce mean reverting expectations than surveys that directly ask for future returns. Furthermore, we conduct a questionnaire study that explicitly analyzes whether the specific elicitation mode affects return expectations in the above direction. In our study, subjects were asked to state mean forecasts for seven time series. Using a between subject design, one half of the subjects was asked to state future price levels, the other group was directly asked for returns. We observe a highly significant framing effect. For upward sloping time series, the return forecasts stated by investors in the return forecast mode are significantly higher than those derived for investors in the price forecast mode. For downward sloping time series, the return forecasts given by investors in the return forecast mode are significantly lower than those derived for investors in the price forecast mode. We argue that this finding is consistent with behavioral theories of investor expectation formation based on the representativeness heuristic.
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