Differences of opinion and price reversals: Evidence from the Taiwan Stock Exchange

Cheng, Chu-Chun; Huang, Yu-Hsi

doi:10.1037/e605362012-002

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2016

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“…Park (2005) find that the dispersion in expectations among market analysts has predictive power for future stock returns: higher dispersion predicts lower stock returns. Cheng and Huang (2015) find similar results for Taiwan stock markets for 1990 to 2008. Yu (2011) finds that the ex post market return is negatively related to the bottom-up disagreement amongst analysts.…”

Section: Introductionsupporting

confidence: 65%

New evidence on the effect of belief heterogeneity on stock returns

Hobbs

Lee

Singh

2016

Rev Quant Finan Acc

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We develop a new measure to examine the effect of the heterogeneity of beliefs among investors on stock returns. Our initial results do not support the information asymmetry hypothesis or the sidelined investor hypothesis (and thus are consistent with the unbiased prices hypothesis). However, since the first two hypotheses make opposite predictions regarding stock returns, they may both have merit but offset one another. Further analysis suggests that this is indeed the case. Overall, our results support both the information asymmetry and sidelined investor hypotheses and thus occupy middle ground in the debate on the effect of disagreement on stock returns.

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Section: Introductionsupporting

confidence: 65%