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Offsetting disagreement and security prices

Huang, Shiyang, Hwang, Byoung-Hyoun, Lou, Dong and Yin, Chengxi (2020) Offsetting disagreement and security prices. Management Science. ISSN 0025-1909

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Identification Number: 10.1287/mnsc.2019.3380


We propose that investor beliefs frequently “cross” in the sense that an investor may like company A, but dislike company B, while another investor may like company B, but dislike company A. Belief-crossing makes it almost impossible to construct a portfolio that is comprised solely of every investor’s most favorite companies. This causes the level of excitement for portfolios to be generally less than the levels of excitement that individual companies receive from their most fervent supporters. Coupled with short-sale constraints, wherein prices are set by the most optimistic investors, this causes portfolios to trade at discounts. Utilizing various settings where the value of the portfolio and the values of the underlying components can be separately evaluated (e.g., closed-end funds), we present evidence supporting our proposition that, in financial markets, the “whole” is oftenless than the “sum of its parts.”

Item Type: Article
Official URL:
Additional Information: © 2019 INFORMS
Divisions: Finance
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
H Social Sciences > HG Finance
Date Deposited: 08 Jul 2019 15:30
Last Modified: 28 Jun 2020 23:27

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