Dispersion of Opinion and Stock Returns:Evidence from European Markets

• Main Authors: To-Ying Huang, 黃拓穎
• Other Authors: Chin-Wen Hsin
• Format: Others
• Language: en_US
• Online Access: http://ndltd.ncl.edu.tw/handle/9q9hbf

碩士 === 元智大學 === 商學碩士班(財務金融學程) === 102 === Miller (1977) hypothesizes that dispersion of opinion accompanied with short-sales constraints result in stock price overvaluation. This research examines evidence of mis-pricing associated with dispersion of investor opinion across 22 European stock markets and explores factors influencing such effect. Empirical results of this study find a significantly negative relationship between dispersion of opinion and subsequent stock returns across most of the European markets, an evidence in support of the overvaluation hypothesis. Additional tests also find results consistent with the hypothesis that the overvaluation effect associated with dispersion of opinion becomes more pronounced in the presence of short-sales constraints. Investor sentiment however fails to show impact on the effect after experimenting with alternative sentiment proxies. Cross-country analysis indicates that greater financial/economic development and the common law compliance mitigate the overvaluation effect arising from dispersion of opinion, possibly due to less regulatory restrictions and/or better information environment.