Journal of Financial Economics Vol. 185 2026
Disagreement of disagreement
Abstract
We show that leading investor disagreement proxies have near-zero cross-correlation – making disagreement pricing inferences challenging. We develop a frictionless model that generates overpricing from latent disagreement, jointly rationalizes major proxies, and generates new testable predictions. Equilibrium interrelationships motivate a new disagreement measure, DIS, which is more predictive of returns cross-sectionally than major proxies and more consistently predictive across macroeconomic regimes. We provide evidence that the friction-based channel of Miller (1977) and a frictionless mechanism coexist and are empirically separable. DIS also provides a micro-founded, disagreement-based account of the IVOL puzzle, absorbing IVOL’s predictability while revealing its regime and friction dependence.
- DOI
- 10.1016/j.jfineco.2026.104379
- Volume
- 185
- Pages
- 104379
- Language
- en
- Sources
- crossref openalex