Disagreement of Disagreement

80 Pages Posted: 28 Nov 2023 Last revised: 5 Feb 2024

See all articles by Christian L. Goulding

Christian L. Goulding

Auburn University - Harbert College of Business

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Hrvoje Kurtović

University of Lausanne - Faculty of Business and Economics (HEC Lausanne)

Date Written: September 16, 2024

Abstract

We find remarkably low correlation among major investor disagreement proxies, making it challenging to infer how disagreement impacts prices. We develop a unified model that incorporates these measures into a novel nonlinear composite disagreement measure, which is more predictive of returns than existing measures, and that explains the stronger disagreement--expected return effect for smaller stocks. Decile spread portfolios sorted on our composite measure generate value-weighted alphas of 21% per year and 27% among smaller stocks. Our model also provides a disagreement-based rationale for the idiosyncratic volatility puzzle, which is absorbed by our composite disagreement in empirical tests.

Keywords: disagreement, difference of opinion, analyst forecast dispersion, idiosyncratic volatility, idiosyncratic skewness, short interest, volume, financial distress, heterogenous agents, beliefs, expectations JEL: G11, G12, M40

JEL Classification: G11, G12, M40

Suggested Citation

Goulding, Christian L. and Harvey, Campbell R. and Kurtović, Hrvoje, Disagreement of Disagreement (September 16, 2024). Available at SSRN: https://ssrn.com/abstract=4647471 or http://dx.doi.org/10.2139/ssrn.4647471

Christian L. Goulding

Auburn University - Harbert College of Business ( email )

Auburn, AL 36849
United States

Campbell R. Harvey (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7768 (Phone)

HOME PAGE: http://www.duke.edu/~charvey

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Hrvoje Kurtović

University of Lausanne - Faculty of Business and Economics (HEC Lausanne) ( email )

Switzerland

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