Testing Disagreement Models
72 Pages Posted: 8 May 2020 Last revised: 22 Sep 2021
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Testing Disagreement Models
Date Written: April 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. 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.
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