Testing Disagreement Models

57 Pages Posted: 5 Dec 2019 Last revised: 20 Apr 2020

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

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Research Institute of Industrial Economics (IFN)

Kevin Tseng

Federal Reserve Bank of Richmond

Multiple version iconThere are 2 versions of this paper

Date Written: April 18, 2020

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 with no accompanying changes in company fundamentals, disclosure quality, or earnings management. The reduction in disagreement leads to lower stock price crash risk. The effect is more pronounced for stocks with binding short-sale constraints and high investor optimism. The reduction in disagreement also leads to higher subsequent returns. Our results provide evidence consistent with models of investor disagreement.

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 Tseng, Kevin, Testing Disagreement Models (April 18, 2020). 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, 106
Taiwan

Pei-Jie Hsiao

National Taiwan University ( email )

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

Alexander Ljungqvist

Stockholm School of Economics ( email )

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

Federal Reserve Bank of Richmond ( email )

530 East Trade St
Charlotte, NC 28202
United States
704-358-2110 (Phone)

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