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Disagreement and return predictability of stock portfolios

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  • Yu, Jialin
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    Abstract

    This paper provides evidence that portfolio disagreement measured bottom-up from individual-stock analyst forecast dispersions has a number of asset pricing implications. For the market portfolio, market disagreement mean-reverts and is negatively related to ex post expected market return. Contemporaneously, an increase in market disagreement manifests as a drop in discount rate. For book-to-market sorted portfolios, the value premium is stronger among high disagreement stocks. The underperformance by high disagreement stocks is stronger among growth stocks. Growth stocks are more sensitive to variations in disagreement relative to value stocks. These findings are consistent with asset pricing theory incorporating belief dispersion.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 99 (2011)
    Issue (Month): 1 (January)
    Pages: 162-183

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    Handle: RePEc:eee:jfinec:v:99:y:2011:i:1:p:162-183

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    Web page: http://www.elsevier.com/locate/inca/505576

    Related research

    Keywords: Disagreement Equity premium Discount rate Value premium;

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    Cited by:
    1. Lioui, Abraham & Poncet, Patrice, 2013. "Optimal benchmarking for active portfolio managers," European Journal of Operational Research, Elsevier, vol. 226(2), pages 268-276.
    2. Kim, Jun Sik & Ryu, Doojin & Seo, Sung Won, 2014. "Investor sentiment and return predictability of disagreement," Journal of Banking & Finance, Elsevier, vol. 42(C), pages 166-178.
    3. Wei Xiong, 2013. "Bubbles, Crises, and Heterogeneous Beliefs," NBER Working Papers 18905, National Bureau of Economic Research, Inc.
    4. Bruce I. Carlin & Francis A. Longstaff & Kyle Matoba, 2012. "Disagreement and Asset Prices," NBER Working Papers 18619, National Bureau of Economic Research, Inc.
    5. Max Leandro Ferreira Tavares & Claudio Henrique da Silveira Barbedo & Gustavo Silva Araujo, 2014. "The Influence of information asymmetry on the return and volatility of value and growth stock portfolios," Brazilian Business Review, Fucape Business School, vol. 11(1), pages 111-129, January.
    6. Hu, J., 2013. "Macroeconomic announcements and financial markets," Open Access publications from Tilburg University urn:nbn:nl:ui:12-5930364, Tilburg University.
    7. Badarinza, Cristian & Buchmann, Marco, 2011. "Macroeconomic vulnerability and disagreement in expectations," Working Paper Series 1407, European Central Bank.

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