Commonality in Disagreement and Stock Returns
33 Pages Posted: 24 Nov 2020
Date Written: October 11, 2020
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: Suggested Citation