Publication Type
Working Paper
Version
publishedVersion
Publication Date
12-2017
Abstract
Most studies on disagreement focus on cross-sectional asset returns and well-recognized disagreement measures generally cannot predict the stock market with a horizon less than 12 months. This paper proposes three aggregate disagreement indexes by aggregating information across 20 disagreement measures. We show that disagreement measures collectively have a common component that has significant power in predicting the stock market both in- and out-of-sample. Consistent with the theory developed by Atmaz and Basak (2017), the indexes asymmetrically forecast the market with greater power in high sentiment periods. Moreover, the indexes negatively predict economic activities, and positively predict market volatility, illiquidity, and trading volume.
Keywords
Disagreement, Market risk premium, Predictability, Information aggregation, PLS
Discipline
Finance and Financial Management
Research Areas
Finance
Citation
HUANG, Dashan; LI, Jiangyuan; and WANG, Liyao.
Are disagreements agreeable? Evidence from information aggregation. (2017).
Available at: https://ink.library.smu.edu.sg/lkcsb_research/6469
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3077938