Knowledge that Transforms

This study examines whether trading patterns at the 52-week high reflect investor disagreement or behavioral convergence. Using StockTwits sentiment, TAQ microstructure data, and machine-learning-informed trading measures for S&P 500 stocks, we document that investor beliefs converge rather than diverge, thereby reducing disagreement by approximately 20%. Belief dispersion falls while both retail and institutional investors proportionally reduce trading and shift toward selling. Anchoring to the 52-week high generates a liquidity mirage, concentrated among the largest stocks where competitive market making prevails: effective spreads narrow and depth increases even as informed-trading intensity declines, consistent with adverse selection models but driven by behavioral convergence. Although liquidity appears to improve, price discovery weakens, and the stock subsequently underperforms characteristic and factor benchmarks by 20 to 30 basis points over five days. Our findings demonstrate how improvements in liquidity can coincide with weaker price discovery when investor beliefs converge around salient behavioral anchors.

Climate-related news has been shown to be financially relevant, and theory predicts that unexpected increases in climate concerns widen the green-brown return spread. Yet entered on its own in a standard factor model, climate attention does not significantly explain weekly green-minus-brown returns. We show that this null is partly an artifact of averaging across ambiguity states. Using weekly S&P 500 returns over 2011–2021 sorted by Refinitiv ESG scores, the marginal pricing effect of a climate-attention shock varies significantly with the level of clean-energy transition ambiguity. We proxy for this ambiguity with ClimateVoV, a novel option-implied vol-of-vol of clean-energy options that captures second-order uncertainty specific to the transition, distinct by construction from general market-wide uncertainty (VIX, VVIX). The marginal effect grows from near-zero at low ambiguity to approximately 8 basis points per week at the 75th percentile. The statistically significant relation is carried by unexpected decreases in climate concerns, not increases. This pattern is consistent with the partial release of worst-case transition discounts on brown firms when concerns ease under elevated ambiguity, compressing the green-minus-brown spread. Restricting the analysis to environmental-impact news yields the strongest interaction. The effect appears in disclosure-based (Refinitiv) but not risk-based (Sustainalytics) ESG sorts. The result survives rate, oil, and policy-uncertainty controls, while a placebo constructed from growth-tech options produces no significant interaction.