Professor George Constantinides, The University of Chicago

"Diagnostic Expectation and the Macroeconomy"
Wednesday, 7 May 2025. 15:00-16:30
Room 281, Adam Smith Business School 

Abstract         

We derive the theoretical predictions of diagnostic expectations regarding the transmission of sentiment to investment, employment, income, productivity, and consumption under imperfect information. We show that sentiment has a stronger effect on economic growth when macroeconomic uncertainty is high and sentiment volatility is low, leading to short-term overreaction and subsequent reversals. Using novel measures of sentiment and uncertainty extracted from US news articles, we find evidence consistent with these predictions both in the cross-section of OECD countries and the time series in the US.

Bio

Dr. Constantinides holds degrees from Oxford and Indiana Universities and currently serves as the Leo Melamed Professor of Finance at the Booth School of Business, the University of Chicago. His research interests focus on the valuation of primary assets and derivatives, with emphasis on incomplete markets, non-standard preferences, financial intermediation, transaction costs, and learning. He has made significant contributions in addressing the causes of the historically observed premium of equity returns over bond returns. His research has appeared in leading economics and finance journals.

Dr. Constantinides is a Fellow and past President of the American Finance Association. He is a founding member and past President of the Society for Financial Studies. He is editor or associate editor of several finance journals. He is currently research associate of the National Bureau of Economic Research. He served as Director/Trustee of the DFA group of funds and trusts

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First published: 25 April 2025

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