Topic: Disagreement, Underreaction, and Stock Returns
Speaker: Ling Cen, Assistant Professor of Finance, The University of Toronto
Date: June 18th, 2014 (Wed.)
Time: 1:00pm-2:30pm
Location: Building 4, Room 101
Language: English
Abstract:
We explore the analyst earnings forecasts data to study the interactive effect between disagreement and under reaction to earnings news on asset prices. We find that (1) changes in the mean of forecasted earnings, as an under reaction measure, predict future returns positively and significantly; that (2) changes in the standard deviation of forecasted earnings, as a disagreement measure, predict future returns negatively and marginally; and more importantly, that (3) changes in the standard deviation predict future returns significantly only when changes in the mean are negative. Our results are robust both in the standard cross-sectional return setting and in the event-study setting around earnings announcements. Our evidence suggests that the return predictability of analyst forecast dispersion measure in Diether, Malloy, and Scherbina (2002) is mainly contributed by the under reaction component in the measure’s deflator rather by the disagreement component in the numerator.
About the speaker:
Dr. Ling Cen is an Assistant Professor of Finance at The University of Toronto. He received his Ph.D. in Finance from Hong Kong University of Science and Technology in 2008 and his M.S. in MSc in Economics & Finance with distinction in from The University of Warwick in 2002. Dr. Cen’s current research interests focus on product market relationships, corporate finance, buy-side analyst behaviors, information supply, disclosure and diffusion, and equity issuance (IPOs and SEOs). His research has been published in Journal of Financial and Quantitative Analysis and Management Science.
