Publication Type

Journal Article

Publication Date

6-2016

Abstract

This paper examines the effects of macro-level disagreement on the cross-section of stock returns. Using forecast dispersion measure from Survey of Professional Forecasters database, I find that when forecast dispersion on macroeconomic factor is high, stocks that have high loadings on that factor earn lower future returns relative to stocks with low loadings and vice versa. This negative relationship between risk premium of macro-factors and macro-level disagreement is robust and exists for a large set of macroeconomic risk factors. These findings are consistent with the model of Hong and Sraer (2015), where high beta stocks are more prone to speculative mispricing than low beta stocks due to their greater sensitivity to aggregate disagreement, resulting in lower subsequent returns for high beta stocks during high aggregate disagreement states.

Keywords

Macro Disagreement, Macroeconomic Risk Factors, Mispricing, Behavioral Finance

Discipline

Corporate Finance | Finance and Financial Management

Research Areas

Finance

Publication

Review of Asset Pricing Studies

Volume

6

Issue

1

First Page

1

Last Page

45

ISSN

2045-9920

Identifier

10.1093/rapstu/rav008

Publisher

Oxford University Press (OUP): Policy F - Oxford Open Option D - RCUK

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Additional URL

https://doi.org/10.1093/rapstu/rav008

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