Offsetting Disagreement and Security Prices

In one sentence

We put forward that investors generally are less excited about portfolios than they are about individual companies and that this has important asset pricing implications.

Summary

We propose that investor beliefs frequently cross, making it difficult to construct portfolios comprised solely of each investor’s favorite companies. With short-sale constraints, where prices are set by a company’s most ardent supporters, this leads portfolios to trade at discounts. We test the mechanism in settings where portfolio and component values can be separately evaluated and find evidence supporting this mechanism.

Research topics