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Heterogeneous Beliefs and Momentum Profits.
- Source :
- Journal of Financial & Quantitative Analysis; Aug2009, Vol. 44 Issue 4, p795-822, 28p
- Publication Year :
- 2009
-
Abstract
- 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. [ABSTRACT FROM AUTHOR]
Details
- Language :
- English
- ISSN :
- 00221090
- Volume :
- 44
- Issue :
- 4
- Database :
- Complementary Index
- Journal :
- Journal of Financial & Quantitative Analysis
- Publication Type :
- Academic Journal
- Accession number :
- 44690733
- Full Text :
- https://doi.org/10.1017/S0022109009990214