On the Internal Consistency of Stock Market Forecasts

Using the Livingston survey data, we test internal consistency restrictions on short-term, medium-term, and long-term stock market forecasts of the S&P 500 (R). We find that neither short-term forecasts are consistent with medium-term forecasts nor that medium-term forecasts are consistent with long-term forecasts. Using a forecast formation process featuring a distributed lag structure, however, we find some weak evidence of internal inconsistency of medium-term forecasts with long-term forecasts.