Disagreement and Return Predictability of Stock Portfolios

Journal of Financial Economics, Vol. 99, No. 1, pp. 162-183, 2010

44 Pages Posted: 27 Oct 2011

See all articles by Jialin Yu

Jialin Yu

Hong Kong University of Science & Technology (HKUST) - Department of Finance

Date Written: March 28, 2010

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.

Suggested Citation

Yu, Jialin, Disagreement and Return Predictability of Stock Portfolios (March 28, 2010). Journal of Financial Economics, Vol. 99, No. 1, pp. 162-183, 2010 , Available at SSRN: https://ssrn.com/abstract=1949417

Jialin Yu (Contact Author)

Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )

Clear Water Bay, Kowloon
Hong Kong

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