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Working Paper Series 2020-15 Testing Disagreement Models
We provide plausibly identified evidence for the role of investor disagreement in asset pricing. Our natural experiment exploits the staggered implementation of EDGAR, which induces a reduction in investor disagreement with no accompanying changes in company fundamentals, disclosure quality, or earnings management. The reduction in disagreement leads to lower stock price crash risk. The effect is more pronounced for stocks with binding short-sale constraints and high investor optimism. The reduction in disagreement is followed by higher returns. Our results provide evidence consistent with models of investor disagreement.
CRETA is honored to invite Professor Jan R. Magnus from Tilburg University as a visitor on September 25. During his visit, Prof. Magnus will lecture on Model averaging and weighted-average ...