Disagreement and return predictability of stock portfolios |
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Authors: | Jialin Yu |
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Institution: | Department of Finance and Economics, Graduate School of Business, Columbia University, 421 Uris Hall, 3022 Broadway, New York, NY 10027, USA |
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Abstract: | This paper provides evidence that portfolio disagreement measured bottom-up from individual-stock analyst forecast dispersions has a number of asset pricing implications. For the market portfolio, market disagreement mean-reverts and is negatively related to ex post expected market return. Contemporaneously, an increase in market disagreement manifests as a drop in discount rate. For book-to-market sorted portfolios, the value premium is stronger among high disagreement stocks. The underperformance by high disagreement stocks is stronger among growth stocks. Growth stocks are more sensitive to variations in disagreement relative to value stocks. These findings are consistent with asset pricing theory incorporating belief dispersion. |
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Keywords: | Disagreement Equity premium Discount rate Value premium |
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