Belief Dispersion, Dispersion of Belief Changes, and Trading Volume: Evidence from Surveys of Consumers and Professional Forecasters

Abstract

We study the effects of dispersion of investors' beliefs and dispersion of belief changes on stock trading volume. Unlike most of the existing work on the subject, our paper focuses on how investors' disagreements on macroeconomic variables affect marketwide trading volume. These macro variables are likely to affect the levels and riskiness of future dividends and discount rates. Moreover, our study includes both household and professional investors. Using the Thomson Reuters/University of Michigan Surveys of Consumers and the Federal Reserve Bank of Philadelphia's Survey of Professional Forecasters, we show that greater disagreements among both types of investors induce significantly higher stock trading volume, with the effects of disagreements among less sophisticated household investors being less pronounced.