Testing Disagreement Models

Chang, Yen‐Cheng; Hsiao, Pei-Jie; Ljungqvist, Alexander; Tseng, Kevin

doi:10.2139/ssrn.3489666

Cited by 8 publications

(9 citation statements)

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“…This result not only complements the findings of Rubin et al (2017) by showing how interpretation difficulty affects mispricing but also highlights the usefulness of Miller (1977) in explaining mispricing in response to financial disclosures. Although the negative relationship between investor disagreement and future stock returns modeled by Miller (1977) has been confirmed elsewhere (Diether et al 2002;Chang et al 2020), prior studies have only examined disagreement in general, whereas we focus on the change in disagreement stimulated by financial disclosures. Thus, our result broadly speaks to the pricing of other public information that is inherently difficult to interpret.…”

Section: Introductionmentioning

confidence: 75%

Asymmetric Inefficiency in the Market Response to Non‐earnings 8‐K Information*

Tan

2022

Contemporary Accting Res

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This paper examines the pricing efficiency of 8‐K filings for events other than earnings announcements. Since these filings provide timely information that is material to investors and explain variations in quarterly returns to a degree similar to other disclosures, understanding how the stock price absorbs their information is important for investors, regulators, and academics. By testing the statistical correlation between the immediate stock returns in response to these filings and subsequent stock returns before, during, and after the forthcoming earnings announcement, we find evidence of investor overreaction to good news but underreaction to bad news in the immediate window. Essentially, the price increases too much for good news but fails to decrease enough for bad news, resulting in overpricing for both. Most of the correction for this overpricing occurs in the period leading up to the forthcoming earnings announcement, while the rest happens during the announcement. Drawing on Miller (1977), we further illustrate that, in the presence of short‐sale constraints, increase in investor disagreement spurred by interpretation difficulty is the most likely mechanism for the observed overpricing. We fail to find sufficient evidence in support of alternative mechanisms, including managerial disclosure strategies, analyst optimistic bias, and retail investor participation. This asymmetric mispricing for non‐earnings 8‐Ks contrasts with the symmetric mispricing commonly found for other types of disclosures, where investors either systematically underreact or overreact to public information. Our results could broadly speak to the pricing of other public information that is inherently difficult to interpret.

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Section: Introductionmentioning

confidence: 75%

Asymmetric Inefficiency in the Market Response to Non‐earnings 8‐K Information*

Tan

2022

Contemporary Accting Res

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“…variables, including analyst forecasts , investor disagreement (Chang, Hsiao, Ljungqvist, and Tseng 2020), information asymmetry (Gomez 2020), earnings management (Liu 2019), and stock price crash risk (Guo, Lisic, Stuart, and Wang 2019). In contrast to our work, these studies do not consider the notion of revelatory price efficiency since their focus is not on how EDGAR affects the real economy.…”

Section: Related Literaturementioning

confidence: 87%

The Real Effects of Modern Information Technologies

2020

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“…Griffin (2003) and Li and Ramesh (2009) document significant stock price reactions surrounding 10-K and 10-Q filings in the EDGAR era. variables, including analyst forecasts , investor disagreement (Chang, Hsiao, Ljungqvist, and Tseng 2020), information asymmetry (Gomez 2020), earnings management (Liu 2019), and stock price crash risk (Guo, Lisic, Stuart, and Wang 2019). In contrast to our work, these studies do not consider the notion of revelatory price efficiency since their focus is not on how EDGAR affects the real economy.…”

Section: Related Literaturementioning

confidence: 87%

The Real Effects of Modern Information Technologies

2020

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Using the staggered implementation of the EDGAR system from 1993 to 1996 as a shock to information dissemination technologies, we examine the potential benefits and costs of modern information technologies on the real economy. On the one hand, we document results confirming the conventional wisdom that broader information dissemination leads to an increase in the level of equity financing and corporate investment. On the other hand, we provide evidence that greater dissemination of corporate disclosures crowds out private information acquisition and reduces managerial learning from stock prices. This crowdingout effect, while often overlooked, is particularly pronounced in high-growth firms. Our findings suggest that it is important to consider this tradeoff between improved equity financing and reduced managerial learning when evaluating the economic effects of modern information technologies. Our evidence suggests that the former effect dominates in value firms while the latter effect dominates in high-growth firms.

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Testing Disagreement Models

Cited by 8 publications

References 0 publications

Asymmetric Inefficiency in the Market Response to Non‐earnings 8‐K Information*

Asymmetric Inefficiency in the Market Response to Non‐earnings 8‐K Information*

The Real Effects of Modern Information Technologies

The Real Effects of Modern Information Technologies

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