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Is Difference of Opinion Among Investors a Source of Risk?Philip GharghoriMonash University; Financial Research Network (FIRN) Madhu VeeraraghavanMonash University – Department of Accounting and Finance and Corporate Finance Cluster; Financial Research Network (FIRN) Quin SeeMonash University May 2007 Abstract: 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, G15 working papers seriesDate posted: February 15, 2008Suggested CitationContact Information
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