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The Dynamics of Disagreement

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  • Kent Daniel
  • Alexander Klos
  • Simon Rottke

Abstract

We infer how the estimates of firm value by “optimists” and “pessimists” evolve in response to information shocks by examining returns and disagreement measures for portfolios of short-sale constrained stocks which have experienced large gains or large losses. Our analysis suggests the presence of two groups, one of which overreacts to new information and remains biased over about five years, and a second group which underreacts and whose expectations are unbiased after about one year. Our results have implications for the belief dynamics that underly the momentum and long-term reversal effect.

Suggested Citation

  • Kent Daniel & Alexander Klos & Simon Rottke, 2018. "The Dynamics of Disagreement," NBER Working Papers 25346, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:25346
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    Cited by:

    1. Dominik M. Piehlmaier, 2022. "Overconfidence and the adoption of robo-advice: why overconfident investors drive the expansion of automated financial advice," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-24, December.

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    More about this item

    JEL classification:

    • G0 - Financial Economics - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G4 - Financial Economics - - Behavioral Finance

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