Skip to main content
×
Home
    • Aa
    • Aa

Analyst Disagreement and Aggregate Volatility Risk

  • Alexander Barinov (a1)
Abstract
Abstract

The paper explains why firms with high dispersion of analyst forecasts earn low future returns. These firms beat the capital asset pricing model in periods of increasing aggregate volatility and thereby provide a hedge against aggregate volatility risk. The aggregate volatility risk factor can explain the abnormal return differential between high- and low-disagreement firms. This return differential is higher for firms with abundant real options, and this fact can be explained by aggregate volatility risk. Aggregate volatility risk can also explain why the link between analyst disagreement and future returns is stronger for firms with high short-sale constraints.

Copyright
Linked references
Hide All

This list contains references from the content that can be linked to their source. For a full set of references and notes please see the PDF or HTML where available.

Y. Amihud Illiquidity and Stock Returns: Cross-Section and Time-Series Effects.” Journal of Financial Markets, 5 (2002), 3156.

D. Avramov ; T. Chordia ; G. Jostova ; and A. Philipov . “Dispersion in Analysts’ Earnings Forecasts and Credit Rating.” Journal of Financial Economics, 91 (2009), 83101.

E. F. Fama , and K. R. French . “Common Risk Factors in the Returns on Stocks and Bonds.” Journal of Financial Economics, 33 (1993), 356.

E. F. Fama , and K. R. French . “Industry Costs of Equity.” Journal of Financial Economics, 43 (1997), 153193.

E. F. Fama , and J. MacBeth . “Risk, Return, and Equilibrium: Empirical Tests.” Journal of Political Economy, 81 (1973), 607636.

L. R. Glosten ; R. Jagannathan ; and D. E. Runkle . “On the Relation between the Expected Value and the Volatility of the Nominal Return on Stocks.” Journal of Finance, 48 (1993), 17791801.

G. Grullon ; E. Lyandres ; and A. Zhdanov . “Real Options, Volatility, and Stock Returns.” Journal of Finance, 67 (2012), 14991537.

T Johnson . “Forecast Dispersion and the Cross-Section of Expected Returns.” Journal of Finance, 59 (2004), 19571978.

E. M Miller . “Risk, Uncertainty, and Divergence of Opinion.” Journal of Finance, 32 (1977), 11511168.

S Nagel . “Short Sales, Institutional Investors, and the Cross-Section of Stock Returns.” Journal ofFinancial Economics, 78 (2005), 277309.

W. Newey , and K. West . “A Simple, Positive Semi-Definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix.” Econometrica, 55 (1987), 703708.

R. Sadka Momentum and Post-Earnings-Announcement Drift Anomalies: The Role of Liquidity Risk.” Journal of Financial Economics, 80 (2006), 309349.

R. Sadka , and A. Scherbina . “Analyst Disagreement, Mispricing, and Liquidity.” Journal of Finance, 62 (2007), 23672403.

Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Journal of Financial and Quantitative Analysis
  • ISSN: 0022-1090
  • EISSN: 1756-6916
  • URL: /core/journals/journal-of-financial-and-quantitative-analysis
Please enter your name
Please enter a valid email address
Who would you like to send this to? *
×