Why Wall Street Is Always Optimistic in January

When Wall Street makes its annual year-end forecasts, they always see a sunny future where stocks are rising in the next year.

As Jeff Sommer writes in The New York Times, "Through last year, since 2000, the consensus has always been bullish, holding that the market would rise, on average, about 9.5 percent a year." The reality, however, is that the market ended up rising about 3.9 percent on average.

Salil Mehta, a statistician and a professor in the Applied Analytics program, has looked into these forecasts on on his blog, Statistical Ideas, and the truth of the matter is that these perennially bullish predictions are dismal analysis.

According to Mehta's work, going back to predictions made beginning in 1998: "On a statistical basis, the forecasters were “actively adding negative value” — essentially destroying value by issuing spurious numbers." These forecasts are, more often than not, meaningless in their impact and too tied to the arbitrary changing of the calendar year.

Read the full article at The New York Times. Learn more about the Master of Science in Applied Analytics.