Publication

Differences of Opinion in Financial Markets: The Implications for Asset Returns
VDM Verlag Dr. Müller, 2009

Image of Differences of Opinion in Financial Markets: The Implications for Asset Returns

How are asset prices determined when investors disagree about the firm valuation? Prof. Anna Scherbina shows that market prices end up being too high, reflecting the more optimistic views.

The reason is that, while optimistic investors can express their opinions freely by buying the shares of the firms they favor, pessimistic investors are often prevented from selling due to widespread short-sale constraints. Stock prices, initially too high, eventually correct down as more information comes out and forces optimists to revise their valuations downwards. Hence, measures that capture the level of investor disagreement, such as dispersion in analysts’ forecasts, also predict future underperformance.

Furthermore, she presents evidence that equity analysts are at least partly to blame for the initial mispricing, as they tend to withhold negative information from investors under pressure from firm management. Yet, it is possible to quantify the amount of withheld negative information from the statistical properties of analysts’ forecasts.

The bottom line is that investors should stay away from stocks that rank high on investor disagreement and measures of withheld negative information.

Books

Commands

Twitter Feed

Loading tweets...

Spotlight Story

Andrew Barkett Finds Innovative Ways to Fuel Entrepreneurship
Named First-ever Chief Technology Officer for Republican National Committee

Image of Andrew Barkett Finds Innovative Ways to Fuel Entrepreneurship

UPDATE: Andrew Barkett is leaving his post as senior engineer at Facebook to bring his decade of experience in Silicon Valley to become the first-ever chief technology officer for the Republican National Committee.The June 4 announcement has stirred a whirlwind of media coverage, including the Huffington Post and Washington Post.Bark

Spotlight Story

MBA Student Consultants Make an IMPACT
Projects Put Business Needs Front and Center

Image of MBA Student Consultants Make an IMPACT

Agilent Technologies’ Electronic Measurement Group is a $3.6 billion business that over the past decade has seen a dramatic shift in its customer base from U.S., and Western European customers to predominantly Asia-based customers. Today, the majority of the division’s revenues are generated outside of the U.S., with an increasing concentration in China.

Spotlight Story

UC Davis Part-Time MBA in Top 8%, Full-Time MBA in Top 9%
U.S. News & World Report’s latest rankings: This marks the 19th consecutive year our MBA program has been ranked among the best in the nation.

Image of  UC Davis Part-Time MBA in Top 8%, Full-Time MBA in Top 9%

(Davis, CA) — The UC Davis Graduate School of Management’s full-time MBA program has been ranked among the top six percent of AACSB International-accredited programs nationwide, according to U.S. News & World Report’s latest graduate business school rankings released today.

Spotlight Story

Mark Otero MBA 07 Builds Sacramento’s Coolest Company
The secret of social gaming mogul Mark Otero’s success is taking things to the extreme

Image of Mark Otero MBA 07 Builds Sacramento’s Coolest Company

The secret of Midtown Sacramento’s Facebook gaming mogul Mark Otero’s success is taking things to the extreme.