Review of Quantitative Finance and Accounting

, Volume 48, Issue 2, pp 289–309 | Cite as

New evidence on the effect of belief heterogeneity on stock returns

  • Jeffrey Hobbs
  • Hei Wai Lee
  • Vivek Singh
Original Research


We develop a new measure to examine the effect of the heterogeneity of beliefs among investors on stock returns. Our initial results do not support the information asymmetry hypothesis or the sidelined investor hypothesis (and thus are consistent with the unbiased prices hypothesis). However, since the first two hypotheses make opposite predictions regarding stock returns, they may both have merit but offset one another. Further analysis suggests that this is indeed the case. Overall, our results support both the information asymmetry and sidelined investor hypotheses and thus occupy middle ground in the debate on the effect of disagreement on stock returns.


Institutional investors Divergence of opinion Sidelined investors Shorting constraints Information asymmetry Unbiased prices 

JEL Classification

G12 G14 


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Copyright information

© Springer Science+Business Media New York 2016

Authors and Affiliations

  1. 1.Department of Finance, Banking and Insurance, Walker College of BusinessAppalachian State UniversityBooneUSA
  2. 2.Department of Accounting and FinanceUniversity of Michigan-DearbornDearbornUSA

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