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Analyst Disagreement and Aggregate Volatility Risk

Published online by Cambridge University Press:  20 February 2014

Alexander Barinov
Alexander Barinov*
Affiliation:
abarinov@terry.uga.edu, Terry College of Business, University of Georgia, 438 Brooks Hall, Athens, GA 30602.
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Abstract

The paper explains why firms with high dispersion of analyst forecasts earn low future returns. These firms beat the capital asset pricing model in periods of increasing aggregate volatility and thereby provide a hedge against aggregate volatility risk. The aggregate volatility risk factor can explain the abnormal return differential between high- and low-disagreement firms. This return differential is higher for firms with abundant real options, and this fact can be explained by aggregate volatility risk. Aggregate volatility risk can also explain why the link between analyst disagreement and future returns is stronger for firms with high short-sale constraints.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 48 , Issue 6 , December 2013 , pp. 1877 - 1900
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2013 

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