Topic: Disagreement, Skewness, and Asset Prices

Speaker: Xingtan Zhang, Assistant Professor of Finance, University of Colorado Boulder

Time: 10:00am-11:30am, April 26 (Beijing Time)

Abstract: 

We present a frictionless model which bridges two seemingly unrelated empirical anomalies: (1) the negative relationship between dispersion in financial analysts’ forecasts and expected returns (Diether et al., 2002) and (2) the negative relationship between idiosyncratic skewness and expected returns (Boyer et al., 2010; Conrad et al., 2013; Amaya et al., 2013; Boyer and Vorkink, 2014). The results follow because (1) empirically, most stocks have positive expected skewness, (2) positive skewness implies that investors’ demand schedules are convex in the relevant price range, and hence, (3) trades due to disagreement do not “cancel out"; asset prices are inflated even without short-selling constraints. Our theory further predicts that skewness and disagreement have an interactive pricing impact. We find support for this prediction in the cross section of stock returns.

About the Author:

Xingtan Zhang is a visiting assistant professor of finance at CKGSB, an assistant professor of finance at University of Colorado Boulder, and a member of Finance Theory Group. He received his Ph.D. from The Wharton School of the University of Pennsylvania in 2017. Before that, he received a Ph.D. in applied math from the University of Pennsylvania and a B.S. in mathematics from Peking University. Zhang’s main research interests are broadly in asset pricing, information economics, behavioral economics, financial institutions, and mechanism design. His work has been published in Econometrica, Review of Financial Studies, Journal of Economic Theory, Management Science, and Journal of Financial Intermediation.