Table I-US: Expectations Questions: Results from US Respondents
Date Dow Jones I-1 US I-2 US I-3 US
Industrial U.S. U.S. U.S.
Average Expected Expected 10-Year
at Time One-Year One-Year Expected
of Survey Growth Growth Growth in
DJIA) in in Nikkei U.S.
DJIA Index Corporate
Earnings
(Annual
Real Rate)
A. Investment Professionals:
1989-II 2554 3.49% -7.67% 5.57%
1990-I 2553 -0.26% -9.14% 5.16%
1990-II 2716 1.75% -8.76% 4.63%
1991-I 2902 6.17% 0.94% 5.02%
1991-II 3044 7.82% -2.52% 5.52%
1992-I 3245 6.51% 0.33% 5.68%
1992-II 3266 4.49% 6.47% 5.74%
1993-I 3343 2.01% 3.22% 5.53%
1993-II 3579 0.56% 1.02% 4.98%
1994-I 3831 2.75% 1.34% 5.56%
1994-II 3937 4.64% 4.95% 5.46%
1995-I 4069 4.12% 0.60% 5.10%
1995-II 4705 4.87% 4.65% 5.88%
1996-I 5581 2.58% 2.76% 6.08%
1996-II 5682 3.11% 6.14% 5.38%
1997-I 6741 2.90% 3.59% 5.66%
1997-II 7917 6.56% 0.52% 3.30%
1998-I 8719 3.22% 5.43% 6.69%
1998-II 7896 5.25% 9.33% 6.75%
1999-I 9694 1.15% 7.48% 5.80%
1999-II 11078
B. Individual Investors:
1989-II 2554 0.62% -2.10% 4.97%
1996-II 5874 5.00% 5.30% 5.13%
Table I-JAPAN: Expectations Questions: Results from Japanese
Respondents
Date Nikkei 225 I-1 Japan I-2 Japan I-3 Japan
Index Japanese Japanese Japanese
at Time Expected Expected Ten-Year
of Survey One-Year One-Year Expected
Growth Growth Growth in
in Nikkei in Japanese
Index DJIA Corporate
Earnings
(Annual
Real Rate)
Investment Professionals:
1989-II 33631 9.49% 8.48% 5.02%
1989 end 35894 13.02% 10.46% -
1990-I 32616 10.84% 12.57% -
1990-II 26490 12.07% 7.29% 5.01%
1991-I 24935 19.33% 11.26% 4.68%
1991-II 23332 18.36% 8.55% 4.25%
1992-I 18436 20.85% 3.41% 3.95%
1992-II 18066 27.69% 0.89% 4.65%
1993-I 19048 14.08% 0.35% 4.76%
1993-II 20322 15.85% 0.83% 3.64%
1994-I 20091 16.27% 0.46% 3.77%
1994-II 19898 11.94% 0.44% 3.88%
1995-I 17830 9.34% -3.66% 3.83%
1995-II 17984 13.20% -1.03% 3.56%
1996-I 20169 10.65% -2.58% 3.73%
1996-II 20981 11.17% -0.83% 3.87%
1997-I 18991 11.29% -3.02% 3.77%
1997-II 17974 13.13% 1.31% 3.89%
1998-I 17096 7.31% -1.19% 3.98%
1998-II 14790 15.64% -0.36% 3.78%
1999-I 15097 1.41% -6.02% 3.74%
1999-II 17630 12.97% -3.71% 3.67%
Table 2-US
Qualitative and Scenario Questions
Results from US Respondents
Date Stock II-1 (2) II-2 (2) II-3 (1) II-4 (1)
Price Stock Stock Advise Advise
Index Prices Prices Stocks Against
Too Too Now Stocks
High High Despite Despite
U. S. Japan Expected Expected
Drop Rise
A. Investment Professionals:
1989-II 2554 18.7% 73.5% 34.4% 24.6%
1990-I 2553 37.9% 81.0% 6.0% 70.4%
1990-II 2716 39.2% 82.6% 11.1% 53.7%
1991-I 2902 34.6% 67.2% 26.4% 34.7%
1991-II 3044 47.1% 71.0% 17.6% 38.4%
1992-I 3245 46.6% 65.9% 19.2% 32.3%
1992-II 3266 44.4% 54.8% 12.3% 44.9%
1993-I 3343 42.1% 55.7% 27.5% 32.8%
1993-II 3579 42.5% 55.2% 30.7% 22.0%
1994-I 3831 42.4% 55.9% 19.2% 42.7%
1994-II 3937 34.4% 40.2% 12.8% 36.5%
1995-I 4069 33.7% 42.2% 20.9% 26.4%
1995-II 4705 30.0% 44.7% 25.3% 25.0%
1996-I 5581 38.6% 31.2% 32.5% 22.8%
1996-II 5682 41.1% 32.9% 20.2% 22.0%
1997-I 6741 49.6% 35.1% 23.3% 43.1%
1997-II 7917 64.6% 21.1% 19.2% 21.3%
1998-I 8719 54.6% 26.0% 33.6% 19.0%
1998-II 7896 48.2% 17.0% 18.6% 46.2%
B. Individual Investors:
1989-II 2554 24.1% 52.5% 43.5% 24.3%
1996-II 5874 46.0% 29.0% 57.3% 22.2%
Date Stock II-5 (1) II-6 (2) II-7 (1) II-8
Price See Trend If PricesProba-
Index Excitement Last Dropped bility
about 6 Months 3% Would of
Stocks was Expect Crash
Specula- Rise Next
tive Next Day 6 Months
A. Investment Professionals:
1989-II 2554 55.5% 19.1% 33.3% 14.9%
1990-I 2553 41.1% 41.2% 34.8% 22.0%
1990-II 2716 43.5% 36.9% 18.6% 23.7%
1991-I 2902 54.8% 36.9% 22.9% 17.3%
1991-II 3044 44.1% 21.1% 36.2% 14.4%
1992-I 3245 48.3% 14.8% 37.9% 19.6%
1992-II 3266 45.9% 18.0% 31.4% 19.6%
1993-I 3343 54.1% 17.4% 29.5% 20.3%
1993-II 3579 45.2% 12.2% 37.0% 20.8%
1994-I 3831 50.8% 20.2% 33.6% 16.2%
1994-II 3937 54.5% 27.2% 22.6% 15.3%
1995-I 4069 51.7% 18.5% 39.5% 15.6%
1995-II 4705 61.2% 17.8% 37.2% 14.6%
1996-I 5581 63.9% 14.6% 32.5% 20.1%
1996-II 5682 67.0% 0.0% 37.0% 15.7%
1997-I 6741 65.3% 31.9% 37.4% 16.8%
1997-II 7917 67.5% 25.7% 39.5% 15.5%
1998-I 8719 62.0% 21.6% 46.5% 20.8%
1998-II 7896 64.2% 46.7% 41.0% 24.3%
B. Individual Investors:
1989-II 2554 50.4% 43.6% 35.3% 17.3%
1996-II 5874 64.7% 0.0% 46.2% 18.5%
Table 2-Japan
Qualitative and Scenario Questions
Results from Japanese Respondents
Date Stock II-1 (2) II-2 (2) II-3 (1) II-4 (1)
Price Stock Stock Advise Advise
Index Prices Prices Stocks Against
Too Too Now Stocks
High High Despite Despite
U. S. Japan Expected Expected
Drop Rise
Investment Professionals:
1989-II 33631 0.0% 26.6% 39.1% 23.7%
1989 end 35894 9.4% 32.1% - -
1990-I 32616 0.8% 61.1% - -
1990-II 26490 11.1% 44.4% 6.8% 65.6%
1991-I 24935 10.4% 16.8% 9.8% 35.8%
1991-II 23332 19.2% 13.9% 14.0% 23.1%
1992-I 18436 36.6% 22.5% 7.0% 62.0%
1992-II 18066 32.4% 11.7% 11.2% 39.4%
1993-I 19048 31.0% 33.3% 15.5% 23.6%
1993-II 20322 33.9% 38.5% 17.6% 18.4%
1994-I 20091 33.5% 30.4% 19.3% 20.3%
1994-II 19898 25.3% 45.1% 11.0% 37.8%
1995-I 17830 29.0% 51.9% 8.3% 46.7%
1995-II 17984 28.2% 27.5% 17.4% 24.7%
1996-I 20169 39.3% 19.7% 24.7% 18.2%
Date Stock II-5 (1) II-6 (2) II-7 (1) II-8
Price See Trend If PricesProba-
Index Excitement Last Dropped bility
about 6 Months 3% Would of
Stocks was Expect Crash
Specula- Rise Next
tive Next Day 6 Months
Investment Professionals:
1989-II 33631 37.2% 14.9% 42.8% 14.6%
1989-end 35894 41.3% - - 13.7%
1990-I 32616 - - - -
1990-II 26490 - 38.2% 29.1% 31.7%
1991-I 24935 34.4% 26.4% 28.1% 18.6%
1991-II 23332 23.7% 25.4% 39.7% 19.7%
1992-I 18436 28.7% 22.5% 20.8% 28.1%
1992-II 18066 25.0% 33.3% 22.5% 27.9%
1993-I 19048 41.9% 24.3% 39.1% 20.1%
1993-II 20322 30.0% 16.9% 37.2% 17.4%
1994-I 20091 27.7% 14.6% 33.8% 15.8%
1994-II 19898 40.2% 24.5% 25.0% 18.2%
1995-I 17830 35.7% 24.8% 32.1% 26.4%
1995-II 17984 27.0% 18.6% 37.0% 16.1%
1996-I 20169 32.2% 12.6% 41.5% 16.1%
The above data were collected by Robert J. Shiller, Cowles Foundation for Research in Economics, Yale University, Fumiko Kon-Ya, Japanese Securities Research Institute, and Yoshiro Tsutsui, Osaka University, in a series of mail questionnaire surveys of institutional investors (and a couple of surveys of individual investors in the US only) starting in 1989. We began collecting these data in reaction to the crash of 1987. At that time we felt that post-crash analyses of the Crash of 1987 were deficient in evidence about what investors were thinking that might have been a factor among the causes of the crash. There were volumes of data on prices and quantities, but virtually no evidence (except anecdotal evidence) about motives and concerns of investors as market events unfolded. We wished to make an attempt to correct this information imbalance by undertaking our own questionnaire surveys, doing these surveys every six months, and with nearly identical questionnaires in the US and Japan so that cross-country comparisons can be made.
We were particularly interested in speculative motives and intentions of investors, quantities that are very difficult to measure. The difficulty of measuring the effects of speculative motives or market psychology on stock prices has been so great, the quantities to be measured so hard to define, that many people even believe that there are no such effects at all, i. e., that markets are perfectly efficient. We still believed that it is worthwhile collecting some data on a regular basis, so that some analysis could be done in the future.
We have been conducting these surveys now for years, and have accumulated substantial data. We had the good fortune to choose a span of time that both preceded and followed the crash in the Tokyo market 1989-1992. Still,the meaning and significance of these data are not entirely clear to us; there is still not a long history of these data to analyze. These data as they are offered to everyone who is interested, with the hope that they will analyze the data carefully in conjunction with other information about the behavior of investors.
Further discussion of our methods and data appear in our article "Why Did the Nikkei Crash? Expanding the Scope of Expectations Data Collection," which was published in the Review of Economics and Statistics 78:156-64, February 1996.
I-1,2 "How much of a change in percentage terms do you
expect in the following (use + before your number to
indicate an expected increase, a - to indicate an expected
decrease, leave blanks where you do not know:
[FILL IN ONE NUMBER FOR EACH]"
After this question there were spaces to fill in the expectations for the various horizons and the two countries' indices, the Dow and the Nikkei. The mean answers for the one-year horizon are shown in Table I; expectations in both countries for both countries are presented.
I-3 "What do you think the rate of growth of real
(inflation adjusted) corporate earnings will be on average
in [the US, Japan] over the next 10 years?
Annual percentage rate: _______________%"
In contrast to the previous question, people were asked to answer only about their own countries' corporate earnings growth [in brackets, the US was printed in US questionnaires, Japan for Japanese]; see Table I.
II-1. "Stock prices in the United States, when compared
with measures of true fundamental value or sensible
investment value, are:
1. Too low. 2. Too high. 3. About right. 4. Do not know."
II-2. "Stock prices in Japan, when compared with measures
of true fundamental value or sensible investment value
are:
1. Too low. 2. Too high. 3. About right. 4. Do not know."
The above two questions were included because we learned from survey work in 1987 that the concept of an overpriced market was very much on people's minds at the time of the stock market crash of October 1987. Table II tabulates the fraction choosing 2, "too high." The remaining questions regard respondent's country:
II-3 "Although I expect a substantial drop in stock
prices in [the US, Japan] ultimately, I advise being
relatively heavily invested in stocks for the time being
because I think that prices are likely to rise for a while.
1. True 2. False 3. No Opinion"
II-4 "Although I expect a substantial rise in stock
prices in [the US, Japan] ultimately, I advise being less
invested in stocks for the time being because I think
that prices are likely to drop for a while.
1. True 2. False 3. No Opinion"
II-5 "Many people are showing a great deal of excitement
and optimism about the prospects for the stock market in
the [United States, Japan] and I must be careful not to
be influenced by them.
1. True. 2. False. 3. No Opinion."
Question II-3 was written to be our basic speculative bubble question, showing what fraction of investors are buying stocks for the short-term, intending to get out before too long. Question II-4 is essentially the opposite question. Question II-5 is very different, asking for an assessment of the excitement in the market rather than the respondent's advice. The fraction choosing 1., true for each of the above three questions is shown in Table II.
II-6 "What do you think is the cause of the trend of
stock prices in [the United States, Japan] in the past six
months?
1. It properly reflects the fundamentals of the U.S. economy and firms.
2. It is based on speculative
thinking among investors or overreaction to current news.
3. Other
4. No opinion."
The fraction choosing 2., speculative thinking, is shown in Table II.
II-7 "If the [Dow, Nikkei] dropped 3% tomorrow, I would
guess that the day after tomorrow the Dow would:
1. Increase. 2. Decrease. 3. Stay the same. 4. No opinion."
The above question was written so that results would give an indication of the instability in the market, the tendency for people to think that drops in the market will be reversed. If people think that they will be reversed, then they would plausibly act so as to cause them to be reversed. The percent choosing 1 is shown in Table II.
II-8 "What do you think is the probability of a
catastrophic stock market crash, like that of October
28, 1929 or October 19, 1987, in the next six months?
(An answer of 0% means that it cannot happen, an answer of
100% means it is sure to happen.) Probability:____%"
The mean probability is shown in Table II.
In 1997, our results show only modest expected growth rates for the indices, contradicting some other reports that people have extravagant expectations. A quarterly 1997 national survey of 750 mutual fund investors conducted for Montgomery Asset Management was reported in media (see New York Times, Edward Wyatt, "The High Hopes of Investors in Stock Funds," October 10, 1997, page D1.) They found that these fund shareholders expected in 1997 returns between 15 and 25% over the next year (depending on the date of the survey).
It is not clear why their results contradict ours. Possible reasons are that they surveyed individual investors in 1997, while our latest surveys of individual investors was in 1996. Also, their individual investors were mutual fund investors, whereas ours was a general sample of institutional investors. Another reason is that their survey was a telephone survey asking only a few questions, whereas ours was a mail survey with a long questionnaire asking many difficult questions. There is possibly a different sample selection bias between the two samples, theirs favoring the less informed, less involved investors. It is also possible of course that the nature of their survey, the other questions and remarks made, showed more encouragement to extravagant statements.
I am inclined to think that there is indeed some substance to the Montgomery Asset Management results, in that their results to reflect highly optimistic expectations of a segment of the investing population. One must interpret survey expectations results with some caution, not accepting any one survey result at face value.
Recent news commentary suggesting that the US stock market is overpriced and may be headed for a decline invites a comparison with Japan in 1989, just before the disastrous decline in the Tokyo market. One should not make too much of any such comparison, since many factors influence the behavior of a market, and the Japanese market crash had much to do with the deep economic recession that followed 1989 there. Still, many have interpreted the peak of the Tokyo market in 1989 with speculative excess, and so some explicit comparisons might be instructive.
The highest proportion we ever recorded in Japan who chose answer 2 to question II-3, that is, who advised stocks despite an expected drop, occurred in 1989. The United States showed in 1996-I its highest proportion since 1989 who chose answer 1 to II-3, and nearly the lowest proportion ever who chose answer 1 to question II-4, an opposite question. But, now, in 1997-I, the answers to the questions are not unusual. The expected growth in Japanese corporate earnings that Japanese respondents reported in answer to question I-3 was highest ever in 1989. The United States respondents are, in 1997-I, not now giving relatively high expected earnings in response to this question, although the expected growth rates are even higher than those given by Japanese respondents in 1989. On the other hand, US respondents did show in 1997-I a near-record high proportion seeing popular excitement about stocks in the US, question II-5, just as Japanese respondents to this question showed a near-record high seeing popular proportion seeing excitement in Japan at the end of 1989.
The Japanese respondents gave their lowest ever estimated probability of a crash in 1989 in answer to question II-8, just before the crash. However, US respondents' estimated probabilities of a crash in answer to II-8 in 1997-I are not particularly low.
Japanese respondents did not tend much more in 1989 than at other times to think that stock prices were too high in Japan (question II-2 Japan). US respondents in 1997-I reported in record high proportions that stock prices were too high in the US (question II-1 US).
In conclusion, these comparisons of the US in 1997-I with Japan at the end of 1989 do not show any obvious or strong similarities between the two.
First mailing dates in the United States were July 5, 1989, January 17, 1990, July 27, 1990, January 31, 1991, August 20, 1991, January 31, 1991, August 20, 1992, February 12, 1993, August 6, 1993, February 28, 1994, September 8, 1994, March 4, 1995, September 1, 1995, March 1, 1996, July 30, 1996 (institutional) Sepember 13, 1996 (individual), March 17, 1997, September 5, 1997, March 2, 1998, and September 9, 1998. In the United States, a second questionnaire and letter were sent out three to five weeks after the first mailing to those who had not responded yet. Mailing dates in Japan were July 3, 1989 (1989-II), November 9, 1989 (end 1989), March 6, 1990 (1990-I), August 10, 1990, February 2, 1991, September 9, 1991, March 27, 1992, September 11, 1992, March 19, 1993, August 4, 1993, February 28, 1994, February 13, 1995, August 22, 1995, February 23, 1996, and August 30, 1996.