Differences of Opinion and Stock Prices: Evidence Based on Revealed Preferences
62 Pages Posted: 26 Jul 2015 Last revised: 27 Dec 2016
Date Written: November 26, 2016
I construct a novel measure of differences of opinion based on investor holdings data which isolates the type of disagreement that is theoretically predicted to affect prices when assets are bundled or unbundled. Empirically, using the setting of corporate spin-offs, I show that differences of opinion about the two entities being separated are, as predicted, related to a significantly more positive event return. Because I focus on ex date returns, these findings cannot be explained by risk, uncertainty or the expected business impacts of the transactions. Placebo tests provide further support that other factors are not driving the results. Additional tests using mergers and closed-end funds provide consistent results, and altogether these findings provide new insight into the attribution of value created when bundling or unbundling assets.
Keywords: differences of opinion, heterogeneous beliefs, spin-offs, mergers
JEL Classification: G14, G34, G12
Suggested Citation: Suggested Citation