Analyst Disagreement, Mispricing and Liquidity Export

@article{citeulike:6031525, abstract = {This paper documents a close link between mispricing and liquidity by investigating stocks with high analyst disagreement. Previous research finds that these stocks tend to be overpriced, but that prices correct downwards as uncertainty about earnings is resolved. Our analysis suggests that one reason mispricing has persisted through the years is that analyst disagreement coincides with high trading costs. We also show that in the cross-section, the less liquid stocks tend to be more severely overpriced. Additionally, increases in aggregate market liquidity accelerate the convergence of prices to fundamentals. As a result, returns of the initially overpriced stocks are negatively correlated with the time series of innovations in aggregate market liquidity.}, author = {Sadka, Ronnie and Scherbina, Anna D.}, citeulike-article-id = {6031525}, citeulike-linkout-0 = {http://ssrn.com/abstract=562285}, citeulike-linkout-1 = {http://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID562285_code542089.pdf?abstractid=562285&mirid=1}, day = {07}, journal = {Social Science Research Network Working Paper Series}, keywords = {finance, valuation}, month = {July}, posted-at = {2009-10-29 08:40:24}, priority = {2}, publisher = {SSRN}, title = {Analyst Disagreement, Mispricing and Liquidity}, url = {http://ssrn.com/abstract=562285}, year = {2004} }

TY - JOUR ID - citeulike:6031525 L3 - citeulike-article-id:6031525 N2 - This paper documents a close link between mispricing and liquidity by investigating stocks with high analyst disagreement. Previous research finds that these stocks tend to be overpriced, but that prices correct downwards as uncertainty about earnings is resolved. Our analysis suggests that one reason mispricing has persisted through the years is that analyst disagreement coincides with high trading costs. We also show that in the cross-section, the less liquid stocks tend to be more severely overpriced. Additionally, increases in aggregate market liquidity accelerate the convergence of prices to fundamentals. As a result, returns of the initially overpriced stocks are negatively correlated with the time series of innovations in aggregate market liquidity. JF - Social Science Research Network Working Paper Series TI - Analyst Disagreement, Mispricing and Liquidity PB - SSRN KW - finance KW - valuation AU - Sadka, Ronnie AU - Scherbina, Anna PY - 2004/July/07/ UR - http://ssrn.com/abstract=562285 ER -