Jialin Yu

Disagreement and Return Predictability of Stock Portfolios

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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.

The PDF above is a preprint version of the article. The final version may be found at < http://dx.doi.org/10.1007/s10436-006-0064-9 >.

Source: Journal of Financial Economics
Exact Citation:
Yu, Jialin. "Disagreement and Return Predictability of Stock Portfolios." Journal of Financial Economics 99, no. 1 (January 2011): 162-183.
Volume: 99
Number: 1
Pages: 162-183
Date: 1 2011