Divergent Opinions and the Performance of Value Stocks

Posted: 30 Dec 2004 Last revised: 7 Jan 2009

See all articles by John A. Doukas

John A. Doukas

Old Dominion University - Strome College of Business

Chansog (Francis) Kim

The State University of New York at Stony Brook

Christos Pantzalis

University of South Florida

Abstract

Divergence of opinions among investors, manifested in the dispersion of analysts' earnings forecasts, may play an important role in asset pricing. This article reports tests of whether disagreement can explain the cross-sectional return difference between value and growth (or glamour) stocks in the U.S. market over the 1983-2001 period. Consistent with the theoretical proposition that stocks subject to greater investor disagreement earn higher returns, the tests found value stocks to be exposed to greater investor disagreement than growth stocks. This finding suggests that the return advantage of value strategies is a reward for the greater disagreement about their future growth in earnings. Alternative multifactor asset-pricing tests supported the proposition that investor disagreement plays an important role in explaining the superior return of value stocks.

Keywords: Portfolio Management, Equity Strategies, Investment Theory, Behavioral Finance

Suggested Citation

Doukas, John A. and Kim, Chansog (Francis) and Pantzalis, Christos, Divergent Opinions and the Performance of Value Stocks. Financial Analysts Journal, Vol. 60, No. 6, pp. 55-64, November/December 2004. Available at SSRN: https://ssrn.com/abstract=636874

John A. Doukas (Contact Author)

Old Dominion University - Strome College of Business ( email )

2080 Constant Hall
Suite 2080
Norfolk, VA 23529-0222
United States
757-683-5521 (Phone)

HOME PAGE: http://www.efmaefm.org/0DOUKAS/doukas.php

Chansog (Francis) Kim

The State University of New York at Stony Brook ( email )

College of Business
Stony Brook, NY 11794
United States
5163040037 (Phone)
631-632-9412 (Fax)

Christos Pantzalis

University of South Florida ( email )

Tampa, FL 33620-5500
United States
(813) 974-3262 (Phone)

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