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Is Difference of Opinion Among Investors a Source of Risk?

30 Pages Posted: 15 Feb 2008  

Philip Gharghori

Monash University

Madhu Veeraraghavan

T.A. PAI Management Institute, Finance Area

Quin See

Monash University

Date Written: May 2007

Abstract

This paper examines the relationship between difference of opinion among investors and the return on Australian equities. The paper is the first to employ both dispersion in analysts' earnings forecasts and maximum share turnover as proxies for difference of opinion among investors. We also investigate whether difference of opinion can explain the value anomaly. Our findings show that (a) difference of opinion is negatively related to stock returns and (b) it cannot explain the value anomaly. Our findings are consistent with Diether, Malloy, and Scherbina (2002) and provide strong support for Miller (1977). We reject the risk-based argument advanced by Doukas, Kim and Pantzalis (2004).

Keywords: Multifactor Model, Difference of Opinion, Analysts' Earnings Forecasts, Maximum Share Turnover, Value Anomaly

JEL Classification: G10, G12, G15

Suggested Citation

Gharghori, Philip and Veeraraghavan, Madhu and See, Quin, Is Difference of Opinion Among Investors a Source of Risk? (May 2007). Available at SSRN: https://ssrn.com/abstract=975003 or http://dx.doi.org/10.2139/ssrn.975003

Philip Gharghori

Monash University ( email )

Wellington Road
Victoria, 3800
Australia
+61399059247 (Phone)

HOME PAGE: http://research.monash.edu/en/persons/philip-gharghori

Madhu Veeraraghavan (Contact Author)

T.A. PAI Management Institute, Finance Area ( email )

Bangalore
Manipal, Karnataka 576104
India
+91-820-2701030 (Phone)

Quin See

Monash University ( email )

Wellington Road
Victoria, Roodepoort 3145
Australia

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