Testing Disagreement Models

69 Pages Posted: 5 Dec 2019 Last revised: 20 Jul 2021

See all articles by Yen-Cheng Chang

Yen-Cheng Chang

National Taiwan University - College of Management; National Taiwan University - Center for Research in Econometric Theory and Applications

Pei-Jie Hsiao

National Taiwan University

Alexander Ljungqvist

Centre for Economic Policy Research (CEPR); Swedish House of Finance; European Corporate Governance Institute (ECGI); Research Institute of Industrial Economics (IFN)

Kevin Tseng

National Taiwan University - Department of Finance; National Taiwan University - Center for Research in Econometric Theory and Applications

Multiple version iconThere are 2 versions of this paper

Date Written: July 18, 2021

Abstract

We provide plausibly identified evidence for the role of investor disagreement in asset pricing. Our natural experiment exploits the staggered implementation of EDGAR, which induces a reduction in investor disagreement. Consistent with models of investor disagreement, EDGAR inclusion helps resolve disagreement around information events, leading to stock price corrections. The reduction in disagreement following EDGAR inclusion also reduces stock price crash risk, especially among stocks with binding short-sale constraints and high investor optimism.

Keywords: investor disagreement, crash risk, EDGAR, behavioral finance

JEL Classification: G02, G12

Suggested Citation

Chang, Yen-Cheng and Hsiao, Pei-Jie and Ljungqvist, Alexander and Ljungqvist, Alexander and Tseng, Kevin, Testing Disagreement Models (July 18, 2021). Journal of Finance, Forthcoming, Swedish House of Finance Research Paper No. 20-5, Available at SSRN: https://ssrn.com/abstract=3489666 or http://dx.doi.org/10.2139/ssrn.3489666

Yen-Cheng Chang (Contact Author)

National Taiwan University - College of Management ( email )

Department and Graduate Institute of Finance
College of Management
Taipei 106
Taiwan

National Taiwan University - Center for Research in Econometric Theory and Applications ( email )

1, Sec. 4, Roosevelt Road
Taipei, 106
Taiwan

Pei-Jie Hsiao

National Taiwan University ( email )

1 Sec. 4, Roosevelt Road
Taipei 106, 106
Taiwan

Alexander Ljungqvist

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Kevin Tseng

National Taiwan University - Department of Finance ( email )

1, Sec. 4, Roosevelt Road
Taipei, 106
Taiwan

National Taiwan University - Center for Research in Econometric Theory and Applications ( email )

1 Sec. 4, Roosevelt Road
Taipei 106, 106
Taiwan

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