Disagreement on the Horizon

Abstract

Using data from The Motley Fool's social prediction platform, CAPS, we document substantial differences in stock predictions across investment horizons. Short- and long-horizon investors respond differently to macroeconomic events and firm news announcements. At the onset of the Covid-19 pandemic, the sentiment of short-horizon predictions became sharply more negative while long-horizon predictions remained optimistic. Short-horizon investors also react more than twice as strongly as long-horizon investors to earnings surprises and technical view events. Around acquisition rumors, short- and long-horizon investors update in opposite directions about the target: short-term investors become more optimistic, while long-term investors become more pessimistic. Motivated by these findings, we develop a firm-day measure of horizon disagreement, spanning from 2006 to 2022, and find it relates significantly to abnormal trading. Additionally, the disagreement-trading relation strengthens on earnings announcement days, providing new evidence on the role of model disagreement.

Keywords: Social finance, social media, investment horizon, disagreement, trading