I set up a disagreement model where traders not only have different interpretations of a public signal that conveys information of a stock, but are also uncertain about the information quality of others' interpretations. The model along with traders being ambiguity-averse predicts a positive relation between investor disagreement (ID) and expected stock return. Consistent with the model's prediction, I find that stocks in the highest ID decile outperform stocks in the lowest ID decile by 9.2 percent annually, adjusted for exposures to the market return as well as size, value, momentum, and liquidity factors. In addition, stocks with higher ID prior to earnings announcements earn significantly higher earnings announcement returns. Furthermore, investor disagreement also increases following firm-specific news events.

Creator

• Hsiao, Lawrence

DOI

• https://doi.org/10.21985/n2-tnbh-2h92

Subject

• Finance

Language

• en

Alternate Identifier

• etdadmin_upload_902772
• http://dissertations.umi.com/northwestern:16075

Date created

• 2022-01-01

Resource type

• Dissertation

Rights statement

• In Copyright