Testing Disagreement Models

Alexander Ljungqvist (), Yen-Cheng Chang, Pei-Jie Hsiao and Kevin Tseng

No 14677, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We provide plausibly identified evidence for the role of investor disagreement in asset pricing. Our natural experiment exploits the staggered implementation of EDGAR, which induces a reduction in investor disagreement. Consistent with models of investor disagreement, EDGAR inclusion helps resolve disagreement around information events, leading to stock price corrections. The reduction in disagreement following EDGAR inclusion also reduces stock price crash risk, especially among stocks with binding short-sale constraints and high investor optimism.

Date: 2020-04
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Journal Article: Testing Disagreement Models (2022)
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