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...[ Read more ]

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.