Perceived long-term (ten-year horizon) return distributions are remarkably bearish and most individuals believe that uncertainty is only marginally greater in the long term than the near term (one-year horizon), resulting in inferred variance ratios that require unprecedented levels of mean reversion. Although respondents’ near-term beliefs are extrapolative, long-term beliefs are counter-cyclical. Long-term beliefs are more important than near-term beliefs in explaining equity market participation. Respondents agree more about long-term than near-term returns and respondents’ characteristics better explain long-term, versus near-term, belief heterogeneity. These patterns have important implications for understanding household finance and both behavioral and traditional asset pricing.
