What Drives the Dispersion Anomaly?

53 Pages Posted: 2 Apr 2019

See all articles by Byoung-Kyu Min

Byoung-Kyu Min

Hanyang University

Buhui Qiu

University of Sydney Business School; Financial Research Network (FIRN)

Tai-Yong Roh

Liaoning University

Date Written: March 10, 2019


This paper shows that the stock return predictability of analysts’ earnings forecast dispersion is driven by the information content of dispersion about future firm profitability. Greater dispersion predicts lower future profitability, and the return predictability of dispersion disappears after controlling for future profitability. We propose disclosure manipulation as an explanation for the relation between dispersion and future profitability. Disclosure quality is inversely related to forecast dispersion. Moreover, the return predictability of dispersion decreases in disclosure quality, and is no longer significant in the post-Sarbanes-Oxley period. Our results are robust to consideration of previously suggested explanations for the dispersion anomaly.

Keywords: Dispersion Anomaly, Profitability, Disclosure Quality

JEL Classification: G12, G14

Suggested Citation

Min, Byoung-Kyu and Qiu, Buhui and Roh, Tai-Yong, What Drives the Dispersion Anomaly? (March 10, 2019). Available at SSRN: https://ssrn.com/abstract=3349929 or http://dx.doi.org/10.2139/ssrn.3349929

Byoung-Kyu Min (Contact Author)

Hanyang University ( email )

Korea, Republic of (South Korea)

Buhui Qiu

University of Sydney Business School ( email )

Room 513, The Codrington Building
The University of Sydney
Sydney, NSW 2006
+61 2 9036 6435 (Phone)
+61 2 9351 6461 (Fax)

HOME PAGE: http://sydney.edu.au/business/staff/buhuiq

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane

Tai-Yong Roh

Liaoning University ( email )

Shenyang, Liaoning

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