Disagreement, underreaction, and stock returns

Ling Cen, K. C.John Wei, Liyan Yang

Research output: Journal article publicationJournal articleAcademic researchpeer-review

15 Citations (Scopus)


We explore analysts' earnings forecast data to improve on one popular disagreement measure-the analyst forecast dispersion measure-proposed by Diether et al. [Diether KB, Malloy CJ, Scherbina A (2002) Differences of opinion and the cross section of stock returns. J. Finance 57:2113-2141]. Our analysis suggests that changes in the standard deviations of forecasted earnings can work as a complementary disagreement measure that is comparable across stocks and immune from other return-predictive information contained in the normalization scalars of analyst forecast dispersion measures. We also document evidence that the change-based disagreement measure predicts future crosssectional returns significantly only when changes in the mean forecasts are negative. This finding suggests that the interaction between disagreement and underreaction to earnings news affects asset prices.

Original languageEnglish
Pages (from-to)1214-1231
Number of pages18
JournalManagement Science
Issue number4
Publication statusPublished - Apr 2017


  • Cross section of stock returns
  • Disagreement
  • Short-sale constraints
  • Underreaction

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research

Cite this