THESIS
2017
vi, 65 pages : illustrations ; 30 cm
Abstract
This thesis examines the effects of macro-level disagreement on the cross-section of stock
returns. Using forecast dispersion measures from the Survey of Professional Forecasters database as proxy for macro disagreement, I find that when disagreement about a
macroeconomic factor is high, stocks that have high loadings on that macro-factor earn
lower future returns relative to stocks with low loadings and vice versa. This negative relation between returns for macro-factors and macro-level disagreement is robust
and exists for a large set of macroeconomic risk factors. These findings are consistent
with the model of Hong and Sraer (2016), in which high beta stocks are more prone to
speculative mispricing than low beta stocks due to their greater sensitivity to aggregate
disagreemen...[
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This thesis examines the effects of macro-level disagreement on the cross-section of stock
returns. Using forecast dispersion measures from the Survey of Professional Forecasters database as proxy for macro disagreement, I find that when disagreement about a
macroeconomic factor is high, stocks that have high loadings on that macro-factor earn
lower future returns relative to stocks with low loadings and vice versa. This negative relation between returns for macro-factors and macro-level disagreement is robust
and exists for a large set of macroeconomic risk factors. These findings are consistent
with the model of Hong and Sraer (2016), in which high beta stocks are more prone to
speculative mispricing than low beta stocks due to their greater sensitivity to aggregate
disagreement, resulting in lower subsequent returns for high beta stocks during high
aggregate disagreement states.
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