Kyle M. Matoba
University of California, Los Angeles
Anderson School of Management
110 Westwood Plaza
Los Angeles CA 90095
Institutional Affiliation: University of California at Los Angeles
NBER Working Papers and Publications
|December 2012||Disagreement and Asset Prices|
with , : w18619
How do differences of opinion affect asset prices? Do investors earn a risk premium when disagreement arises in the market? Despite their fundamental importance, these questions are among the most controversial issues in finance. In this paper, we use a novel data set that allows us to directly measure the level of disagreement among Wall Street mortgage dealers about prepayment speeds. We examine how disagreement evolves over time and study its effects on expected returns, return volatility, and trading volume in the mortgage-backed security market. We find that increased disagreement is associated with higher expected returns, higher return volatility, and larger trading volume. These results imply that there is a positive risk premium for disagreement in asset prices. We also show that ...
Published: Bruce I. Carlin & Francis A. Longstaff & Kyle Matoba, 2014. "Disagreement and asset prices," Journal of Financial Economics, vol 114(2), pages 226-238.