The Dynamics of Disagreement

Abstract In this paper, we infer how the estimates of firm value by “optimists” and “pessimists” evolve in response to information shocks. Specifically, examine returns disagreement measures for portfolios short-sale-constrained stocks that have experienced large gains or losses. Our analysis suggests presence two groups, one which overreacts new remains biased over about 5 years, a second group, underreacts whose expectations are unbiased after 1 year. results implications belief dynamics underlie momentum long-term reversal effect. Authors furnished an Internet Appendix, is available on Oxford University Press Web site next link final published paper online.