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Economic Forecast Disagreement and Equity Pricing: International Evidence

Author

Listed:
  • Mehran Akbari
  • Christian Bauer
  • Matthias Neuenkirch
  • Dennis Umlandt

Abstract

Economic expectations play a central role in financial markets, yet investors often disagree about the economy’s future. This disagreement has long been viewed as a potential driver of asset prices, but it remains unclear whether it reflects mispricing or a priced source of risk. We address this question by constructing monthly disagreement indices from Consensus Economics forecasts from 24 OECD markets. Firm-level exposure to economic disagreement is estimated through return regressions. Results reveal pronounced cross-country heterogeneity. In developed markets, particularly the United States, greater exposure to disagreement consistently predicts lower future returns, supporting the mispricing hypothesis. Smaller markets exhibit mixed patterns, with some evidence of positive risk premia, while other cases show no significant effect. These findings provide new international evidence that the pricing of forecast disagreement is context-dependent, shaped by market structure and institutional depth.

Suggested Citation

  • Mehran Akbari & Christian Bauer & Matthias Neuenkirch & Dennis Umlandt, 2024. "Economic Forecast Disagreement and Equity Pricing: International Evidence," Research Papers in Economics 2025-07, University of Trier, Department of Economics.
    • Handle: RePEc:trr:wpaper:202507
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    File URL: https://www.uni-trier.de/fileadmin/fb4/prof/VWL/EWF/Research_Papers/2025-07.pdf
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    References listed on IDEAS

    as
    1. Peter S. Schmidt & Urs von Arx & Andreas Schrimpf & Alexander F. Wagner & Andreas Ziegler, 2019. "Common risk factors in international stock markets," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 33(3), pages 213-241, September.
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    3. Merton, Robert C, 1973. "An Intertemporal Capital Asset Pricing Model," Econometrica, Econometric Society, vol. 41(5), pages 867-887, September.
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    Keywords

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    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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