Commonality in Disagreement and Stock Returns

33 Pages Posted: 24 Nov 2020

See all articles by Gady Jacoby

Gady Jacoby

Seton Hall University; University of Manitoba - Department of Accounting and Finance

Shi Li

University of Manitoba - Asper School of Business

Lei Lu

Asper School of Business, University of Manitoba

Date Written: October 11, 2020

Abstract

We examine the relationship between firms’ individual disagreement and the aggregate disagreement. We find that a commonality in firms’ individual disagreements exists at the market level, industry level, and geographic level. This commonality increases with a firm’s asymmetric information, uncertainty, and the degree of coverage, but decreases with a firm’s accounting information quality. We find a positive relationship between the commonality in disagreement and stock returns. A higher disagreement commonality may indicate lower usefulness of firm-specific information that strengthens the synchronicity between a firm’s stock return and the market return.

Keywords: Heterogeneous belief, information production, stock return comovement

JEL Classification: G12, G14

Suggested Citation

Jacoby, Gady and Jacoby, Gady and Li, Shi and Lu, Lei, Commonality in Disagreement and Stock Returns (October 11, 2020). Available at SSRN: https://ssrn.com/abstract=3709396 or http://dx.doi.org/10.2139/ssrn.3709396

Gady Jacoby

Seton Hall University ( email )

400 S Orange Avenue
South Orange, NJ 07079
United States

University of Manitoba - Department of Accounting and Finance

Faculty of Management
Winnipeg, MB R3T 5V4
Canada

Shi Li

University of Manitoba - Asper School of Business ( email )

181 Freedman Crescent
Winnipeg, Manitoba R3T 5V4
Canada

Lei Lu (Contact Author)

Asper School of Business, University of Manitoba ( email )

181 Freedman Crescent
Winnipeg, Manitoba R3T 5V4
Canada

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