Testing Disagreement Models
69 Pages Posted: 5 Dec 2019 Last revised: 20 Jul 2021
Date Written: July 18, 2021
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: Suggested Citation