Using the Michigan Survey of Consumers, we provide evidence that consumers' beliefs about current and future aggregate durable expenditure predict expected returns. We rationalize this finding through an asset pricing model with recursive preferences over non-durable and durable goods and belief formation through Bayesian learning. We estimate the model to match standard macroeconomic and financial moments. Expectations about future consumption growth enter the stochastic discount factor of the economy through consumers' intertemporal marginal rate of substitution. This generates the predictability of beliefs for all future asset returns.

Finance for Normal People teaches behavioral finance to people like you and me - normal people, neither rational nor irrational. We are consumers, savers, investors, and managers - corporate managers, money managers, financial advisers, and all other financial professionals. The book guides us to know our wants-including hope for riches, protection from poverty, caring for family, sincere social responsibility and high social status. It teaches financial facts and human behavior, including making cognitive and emotional shortcuts and avoiding cognitive and emotional errors such as overconfidence, hindsight, exaggerated fear, and unrealistic hope. And it guides us to banish ignorance, gain knowledge, and increase the ratio of smart to foolish behavior on our way to what we want. These lessons of behavioral finance draw on what we know about us-normal people-including our wants, cognition, and emotions. And they draw on the roles of these factors in saving and spending, portfolio construction, returns we can expect from our investments, and whether we can hope to beat the market. Meir Statman, a founder of behavioral finance, draws on his extensive research and the research of many others to build a unified structure of behavioral finance. Its foundation blocks include normal behavior, behavioral portfolio theory, behavioral life-cycle theory, behavioral asset pricing theory, and behavioral market efficiency.

Financial advisors who worked to restrain exuberant investors in the late 1990s, worked equally hard to lift desperate investors in the early 2000s. Will lower stock prices sap the confidence of consumers? Will lower consumer confidence extinguish all hope for investors?We study the consumer confidence measures of the Conference Board and the University of Michigan and the investor sentiment measures of the American Association of Individual Investors and Investor's Intelligence. We find that consumers grow confident when investors grow bullish. Consumer confidence declines when stock prices decline but investors need not fear that declines in consumer confidence would be followed by low stocks returns. Low consumer confidence is followed by high stock returns more often than it is followed by low stock returns.

Financial Markets and the Real Economy reviews the current academic literature on the macroeconomics of finance.