This paper analyzes investor expectations of future stock market returns from six data sources between 1963 and 2011. The six measures of expectations are highly positively correlated with each other, as well as with past stock returns and the level of the stock market. However, investor expectations are strongly negatively correlated with model-based expected returns. The authors reconcile this evidence by calibrating a simple behavioral model in which fundamental traders require a premium to accommodate expectations shocks from extrapolative traders, but markets are not efficient. The paper compares these measures of investor expectations to four standard measures of expected returns (ER). It finds that ER and expectations of returns are generally negatively correlated. When investors expect high stock market returns, model-based expected returns are low. This contradicts the rational expectations hypothesis, which predicts a positive correlation between expectations and ER. The paper also finds that both expectations of returns and ER predict future stock market returns, but with opposite signs. When ER is high, market returns are on average high; when expectations of returns are high, market returns are on average low. The authors propose a behavioral model in which a subgroup of investors hold extrapolative expectations, and another subgroup are fundamentalists whose demand is inversely related to market valuations. In this model, aggregate risk is constant, but the amount of risk that must be held by the fundamentalists varies over time. This is because the fundamentalists must accommodate the time-varying demand of the extrapolative traders. The authors find that the standard measures of ER have forecasting power for market returns. This suggests that the forecasting power of ER does not necessarily come from changes in required risk premia in a representative agent model. A high dividend price ratio may predict high future stock market returns not because investors in aggregate have become more risk averse, but because a subset of investors in the market demand a premium for absorbing stock sold by positive feedback traders who believe future market returns will be low. The paper also discusses the use of survey data to test economic hypotheses. It finds that survey data on investor expectations are highly correlated with actual behavior, such as mutual fund flows. This suggests that investors act in line with their reported expectations. The paper also finds that survey data on investor expectations are not meaningless noise, but rather reflections of widely shared beliefs about future market returns, which tend to be extrapolative in nature.This paper analyzes investor expectations of future stock market returns from six data sources between 1963 and 2011. The six measures of expectations are highly positively correlated with each other, as well as with past stock returns and the level of the stock market. However, investor expectations are strongly negatively correlated with model-based expected returns. The authors reconcile this evidence by calibrating a simple behavioral model in which fundamental traders require a premium to accommodate expectations shocks from extrapolative traders, but markets are not efficient. The paper compares these measures of investor expectations to four standard measures of expected returns (ER). It finds that ER and expectations of returns are generally negatively correlated. When investors expect high stock market returns, model-based expected returns are low. This contradicts the rational expectations hypothesis, which predicts a positive correlation between expectations and ER. The paper also finds that both expectations of returns and ER predict future stock market returns, but with opposite signs. When ER is high, market returns are on average high; when expectations of returns are high, market returns are on average low. The authors propose a behavioral model in which a subgroup of investors hold extrapolative expectations, and another subgroup are fundamentalists whose demand is inversely related to market valuations. In this model, aggregate risk is constant, but the amount of risk that must be held by the fundamentalists varies over time. This is because the fundamentalists must accommodate the time-varying demand of the extrapolative traders. The authors find that the standard measures of ER have forecasting power for market returns. This suggests that the forecasting power of ER does not necessarily come from changes in required risk premia in a representative agent model. A high dividend price ratio may predict high future stock market returns not because investors in aggregate have become more risk averse, but because a subset of investors in the market demand a premium for absorbing stock sold by positive feedback traders who believe future market returns will be low. The paper also discusses the use of survey data to test economic hypotheses. It finds that survey data on investor expectations are highly correlated with actual behavior, such as mutual fund flows. This suggests that investors act in line with their reported expectations. The paper also finds that survey data on investor expectations are not meaningless noise, but rather reflections of widely shared beliefs about future market returns, which tend to be extrapolative in nature.