Whose Disagreement Matters? Household Belief Dispersion and Stock Trading Volume*

Belief dispersion in the stock market

Dan Li and Geng Li

Review of Finance, 2021, vol. 25, issue 6, 1859-1900

Abstract: Theoretical models have long recognized the role of investor disagreements in the marketplace, but little evidence is documented regarding how belief dispersion affects trading activities in the broad equity market. Using over three decades of data from a survey of US households, we introduced a novel measure of household macroeconomic belief dispersion and document its positive relationship with market-wide stock trading volume, even after controlling for an array of professional analysts’ belief dispersion. Results are more pronounced for the belief dispersion among households who are more likely to own stocks. Furthermore, we show that the household belief dispersion is priced in the cross-section of stock returns, whereas that among professional analysts is not.

Keywords: Household expectations; Belief dispersion; Trading volume; Cross-section returns (search for similar items in EconPapers)
JEL-codes: G12 G41 G50 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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