Analyst Disagreement and Aggregate Volatility Risk
University of Georgia - Terry College of Business
August 1, 2012
The paper explains why firms with high dispersion of analyst forecasts earn low future returns. These firms beat the CAPM in periods of increasing aggregate volatility and thereby provide a hedge against aggregate volatility risk. The aggregate volatility risk factor can explain the abnormal return differential between high and low disagreement firms. This return differential is higher for firms with abundant real options, and this fact can be explained by aggregate volatility risk. Aggregate volatility risk can also explain why the link between analyst disagreement and future returns is stronger for firms with high short-sale constraints.
Number of Pages in PDF File: 43
Keywords: Aggregate volatility risk, analyst disagreement, analyst forecasts, real options, mispricing
JEL Classification: G12, G13, G32, E44, D80, M41working papers series
Date posted: July 17, 2009 ; Last revised: August 6, 2012
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