Think of Both Price and Return to Mitigate Framing Effect on Forecast (working paper)

Literature suggests the existence of framing effect throughout decision-makers when forecasting stock price vs stock return, thereby making estimates of price and return heterogeneous, although these two values must be equivalent representing each other. However, the solution to the mentioned anomaly is understudied. In our experiment, we try to shrink the effect down by suggesting the treatment group jointly forecast price and return. We compare their forecasts with those who are subject to forecast either price or return only (control groups). Results hypothetically confirm that the jointly estimated price and return by the treatment group are significantly equivalent - though not necessarily mathematically equal – while the separately estimated price and return by control groups significantly deviate from each other. Therefore, results hypothetically, economically confirm that the joint forecasts lie somewhere in between the two separate forecasts.

Keywords:

Framing Effect , Return , Price , Forecast , Solution.