Bubble Expectations

Abstract

Individual investors form their expectations as if a time of a bubble is a good time to invest. Almost half of the individual investors polled by Gallup in the late 1990s thought that the stock market was in a bubble, but almost three-quarters thought that it was a good time to invest. By September 2001, fewer investors thought that the stock market was in a bubble, and fewer thought that it was a good time to invest. The mean stock market return expected during the 12 months following September 2001 declined to 6.3%, less than half its late 1990s level, but investors were more optimistic about stock market returns over the long term and the returns of their own portfolios.