Review of Financial Studies Vol. 36 No. 6 2023
The Dynamics of Disagreement
open access
Abstract
In this paper, we infer how the estimates of firm value by “optimists” and “pessimists” evolve in response to information shocks. Specifically, we examine returns and disagreement measures for portfolios of short-sale-constrained stocks that 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 5 years, and a second group, which underreacts and whose expectations are unbiased after about 1 year. Our results have implications for the belief dynamics that underlie the momentum and long-term reversal effect.
- DOI
- 10.1093/rfs/hhac075
- Volume
- 36
- Issue
- 6
- Pages
- 2431-2467
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref