Verardo, Michela (2009) Heterogenous beliefs and momentum profits. Journal of financial and quantitative analysis, 44 (4). pp. 795-822. ISSN 0022-1090
Recent theoretical models derive return continuation in a setting where investors have heterogeneous beliefs or receive heterogeneous information. This paper tests the link between heterogeneity of beliefs and return continuation in the cross-section of U.S. stock returns. Heterogeneity of beliefs about a firm's fundamentals is measured by the dispersion in analyst forecasts of earnings. The results show that momentum profits are significantly larger for portfolios characterized by higher heterogeneity of beliefs. Predictive cross-sectional regressions show that heterogeneity of beliefs has a positive effect on return continuation after controlling for a stock's visibility, the speed of information diffusion, uncertainty about fundamentals, information precision, and volatility. The results in this paper are robust to the potential presence of short-sale constraints and are not explained by arbitrage risk.
|Additional Information:||© 2009 Foster School of Business, University of Washington|
|Library of Congress subject classification:||H Social Sciences > HG Finance|
|Sets:||Departments > Finance|
|Identification Number:||UT ISI:000270604300003|
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