A MICRO LEVEL STUDY OF EXPECTATIONS FORMATION AT GLOBAL SYSTEMICALLY IMPORTANT BANKS

This work contributes to the growing literature on individual level expectations formation by leveraging a novel dataset of cash and liquidity projections from Global Systemically Important Banks (GSIBs) in a forecast evaluation and study of firm level rationality. Methodologies ranging from Mincer and Zarnowitz (1969), Elliot, Komunjer, and Timmermann (2008) and Bordalo, Gennaioli, Ma, and Shleifer (2020) test for rationality, asymmetric preferences in loss functions, and over or under reaction to news. Results indicate that the rejections of rationality may be partly driven by classical assumptions of symmetric loss, with many entities demonstrating an aversion to overestimating their ending day positions, or a preference towards “conservativeness.” Upon accounting for asymmetric preferences, the rejection rates moderate.