The paper by Robin Greenwood and Andrei Shleifer analyzes time-series data on investor expectations of future stock market returns from six different sources between 1963 and 2011. The measures of investor expectations are highly correlated with each other, as well as with past stock returns and the level of the stock market. However, these expectations are strongly negatively correlated with model-based expected returns (ER). To reconcile this evidence, the authors calibrate a simple behavioral model where fundamental traders require a premium to accommodate the extrapolative expectations shocks from positive feedback traders, but markets are not efficient. The model suggests that the forecasting power of ER does not stem from changes in required risk premia in a representative agent model, but rather from the demand for risk by fundamental traders who must accommodate the time-varying demand of extrapolative traders. The paper also discusses the implications of these findings for economic theory and the literature on stock market volatility and efficient markets.The paper by Robin Greenwood and Andrei Shleifer analyzes time-series data on investor expectations of future stock market returns from six different sources between 1963 and 2011. The measures of investor expectations are highly correlated with each other, as well as with past stock returns and the level of the stock market. However, these expectations are strongly negatively correlated with model-based expected returns (ER). To reconcile this evidence, the authors calibrate a simple behavioral model where fundamental traders require a premium to accommodate the extrapolative expectations shocks from positive feedback traders, but markets are not efficient. The model suggests that the forecasting power of ER does not stem from changes in required risk premia in a representative agent model, but rather from the demand for risk by fundamental traders who must accommodate the time-varying demand of extrapolative traders. The paper also discusses the implications of these findings for economic theory and the literature on stock market volatility and efficient markets.