Daniel, K., Klos, A. and Rottke, S. (2023). The Dynamics of Disagreement Review of Financial Studies, 36(6):2431--2467.
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Affiliated author
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Publication year2023
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JournalReview of Financial Studies
In this paper, we infer how the estimates of firm value by {\textquotedblleft}optimists{\textquotedblright} and {\textquotedblleft}pessimists{\textquotedblright} 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.