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Difference of opinion and the cross-section of equity returns: Australian evidence

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  • Gharghori, Philip
  • See, Quin
  • Veeraraghavan, Madhu

Abstract

This paper examines the relationship between difference of opinion among investors and the return on Australian equities. The paper is the first to employ dispersion in analysts' earnings forecasts, abnormal turnover and idiosyncratic volatility as proxies for difference of opinion. We document a negative relationship between difference of opinion and stock returns when dispersion in analysts' forecasts and idiosyncratic volatility are employed as proxies. This result provides support for Miller's (1977) model and is consistent with the findings of Diether et al. (2002). In contrast, we find mixed results when using abnormal turnover to proxy difference of opinion.

Suggested Citation

  • Gharghori, Philip & See, Quin & Veeraraghavan, Madhu, 2011. "Difference of opinion and the cross-section of equity returns: Australian evidence," Pacific-Basin Finance Journal, Elsevier, vol. 19(4), pages 435-446, September.
    • Handle: RePEc:eee:pacfin:v:19:y:2011:i:4:p:435-446
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    Cited by:

    1. Zhong, Angel, 2018. "Idiosyncratic volatility in the Australian equity market," Pacific-Basin Finance Journal, Elsevier, vol. 50(C), pages 105-125.
    2. Chen, Tao, 2020. "Does news affect disagreement in global markets?," Journal of Business Research, Elsevier, vol. 109(C), pages 174-183.
    3. Philip Gharghori & Sebastian Stryjkowski & Madhu Veeraraghavan, 2013. "Value versus growth: Australian evidence," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 53(2), pages 393-417, June.
    4. Faff, Robert & Gharghori, Philip & Nguyen, Annette, 2014. "Non-nested tests of a GDP-augmented Fama–French model versus a conditional Fama–French model in the Australian stock market," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 627-638.
    5. Chang, Chiao-Yi, 2013. "The market response of insider transferring trades and firm characteristics in Taiwan," Emerging Markets Review, Elsevier, vol. 16(C), pages 131-144.
    6. Bin Liu & Monica Tan & Marie-Anne Cam, 2019. "Reinvestigate the Bid–Ask Bounce Effect and Pricing of Idiosyncratic Volatility: The Case of the Australian Market," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 22(01), pages 1-23, March.
    7. Jorida Papakroni, 2018. "The dispersion anomaly and analyst recommendations," Review of Quantitative Finance and Accounting, Springer, vol. 50(3), pages 861-896, April.

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