Difference of opinion and the cross-section of equity returns: Australian evidence |
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| Authors: | Philip Gharghori Quin See Madhu Veeraraghavan |
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| Institution: | 1. Department of Accounting and Finance, Monash University, Clayton Campus, Victoria 3800, Melbourne, Australia;2. Technology, Media & Telecom-Asia, Investment Banking, UBS AG, 52/F 2 International Financial Centre, 8 Finance Street, Hong Kong;3. Department of Accounting and Finance and Corporate Finance Cluster, Monash University, Clayton Campus and Centre Associate, Australian Centre for Financial Studies, Melbourne, Australia |
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| 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 dispersion in analysts' earnings forecasts, abnormal turnover and idiosyncratic volatility as proxies for difference of opinion. We document a negative relationship between difference of opinion and stock returns when dispersion in analysts' forecasts and idiosyncratic volatility are employed as proxies. This result provides support for Miller's (1977) model and is consistent with the findings of Diether et al. (2002). In contrast, we find mixed results when using abnormal turnover to proxy difference of opinion. |
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