Is Difference of Opinion Among Investors a Source of Risk?
Monash University; Financial Research Network (FIRN)
Monash University – Department of Accounting and Finance and Corporate Finance Cluster; Financial Research Network (FIRN)
This paper examines the relationship between difference of opinion among investors and the return on Australian equities. The paper is the first to employ both dispersion in analysts' earnings forecasts and maximum share turnover as proxies for difference of opinion among investors. We also investigate whether difference of opinion can explain the value anomaly. Our findings show that (a) difference of opinion is negatively related to stock returns and (b) it cannot explain the value anomaly. Our findings are consistent with Diether, Malloy, and Scherbina (2002) and provide strong support for Miller (1977). We reject the risk-based argument advanced by Doukas, Kim and Pantzalis (2004).
Number of Pages in PDF File: 30
Keywords: Multifactor Model, Difference of Opinion, Analysts' Earnings Forecasts, Maximum Share Turnover, Value Anomaly
JEL Classification: G10, G12, G15working papers series
Date posted: February 15, 2008
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