The Dynamics of Disagreement

54 Pages Posted: 24 Dec 2018 Last revised: 6 Nov 2021

See all articles by Kent D. Daniel

Kent D. Daniel

Columbia University - Columbia Business School, Finance; National Bureau of Economic Research (NBER)

Alexander Klos

University of Kiel - Institute for Quantitative Business and Economics Research (QBER)

Simon Rottke

University of Amsterdam - Finance Group; Tinbergen Institute

Multiple version iconThere are 2 versions of this paper

Date Written: November 5, 2021

Abstract

We infer how the estimates of firm value by 'optimists' and 'pessimists' evolve in response to information shocks by examining returns and disagreement measures for portfolios of short-sale constrained stocks which have experienced large gains or large losses. Our analysis suggests the presence of two groups, one of which overreacts to new information and remains biased over about five years, and a second group which underreacts and whose expectations are unbiased after about one year. Our results have implications for the belief dynamics that underly the momentum and long-term reversal effect.

Keywords: disagreement, differences of opinion, short-sale constraints, momentum, long-term reversal, mispricing persistence

JEL Classification: G12, G14

Suggested Citation

Daniel, Kent D. and Klos, Alexander and Rottke, Simon, The Dynamics of Disagreement (November 5, 2021). 10th Miami Behavioral Finance Conference, Available at SSRN: https://ssrn.com/abstract=3294053 or http://dx.doi.org/10.2139/ssrn.3294053

Kent D. Daniel

Columbia University - Columbia Business School, Finance ( email )

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Alexander Klos

University of Kiel - Institute for Quantitative Business and Economics Research (QBER) ( email )

Heinrich-Hecht-Platz 9
Kiel, 24118
Germany

HOME PAGE: http://www.qber.uni-kiel.de/

Simon Rottke (Contact Author)

University of Amsterdam - Finance Group ( email )

Roetersstraat 18
Amsterdam, 1018 WB
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

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