The Size of Disagreement Shock

35 Pages Posted: 17 Aug 2017

See all articles by Yuecheng Jia

Yuecheng Jia

Central University of Finance and Economics (CUFE) - Chinese Academy of Finance and Development

Di Liu

Central University of Finance and Economics (CUFE) - Chinese Academy of Finance and Development

Haoxi Yang

Nankai University

Date Written: June 15, 2017

Abstract

Prior theoretical models on investors’ disagreement and trading volume such as Banerjee and Kremer (2010) and Banerjee (2011) assume the convergence speed of investors’ disagreement is exogenously given and constant over time. This paper extends the prior literature by including the time–varying convergence speed of disagreement. Motivated by our theoretical framework, we propose a novel measure, the size of disagreement shock (SDisp), which is defined as the excess turnover (against historical average trading volume) per unit of the time series standard deviation of trading volume. Consistent with our model implications, we find that SDisp has a strong positive relation with future cross–sectional stock returns and future investors’ disagreement.

Keywords: Disagreement shock, trading volume, stock return

JEL Classification: G12

Suggested Citation

Jia, Yuecheng and Liu, Di and Yang, Haoxi, The Size of Disagreement Shock (June 15, 2017). Available at SSRN: https://ssrn.com/abstract=3019730 or http://dx.doi.org/10.2139/ssrn.3019730

Yuecheng Jia (Contact Author)

Central University of Finance and Economics (CUFE) - Chinese Academy of Finance and Development ( email )

39 South College Road
Beijing
China

Di Liu

Central University of Finance and Economics (CUFE) - Chinese Academy of Finance and Development ( email )

39 South College Road
Beijing
China

Haoxi Yang

Nankai University ( email )

Tongyan Road 38
Tianjin, Tianjin 300350
China

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