The Dynamics of Disagreement

Kent Daniel, Alexander Klos and Simon Rottke

No 25346, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We infer how the estimates of firm value by “optimists” and “pessimists” evolve in response to information shocks by examining returns and disagreement measures for portfolios of short-sale constrained stocks which have experienced large gains or large losses. Our analysis suggests the presence of two groups, one of which overreacts to new information and remains biased over about five years, and a second group which underreacts and whose expectations are unbiased after about one year. Our results have implications for the belief dynamics that underly the momentum and long-term reversal effect.

JEL-codes: G0 G12 G4 (search for similar items in EconPapers)
Date: 2018-12
Note: AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published as Kent Daniel & Alexander Klos & Simon Rottke & Lauren Cohen, 2023. "The Dynamics of Disagreement," The Review of Financial Studies, vol 36(6), pages 2431-2467.

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