Commonality in disagreement

Abstract

We examine the relationship between firms' individual disagreement and the aggregate disagreement. We find that a commonality in firms' individual disagreements exists at the market level, industry level, and geographic level. This commonality increases with a firm's asymmetric information, uncertainty, and the degree of coverage, but decreases with a firm's accounting information quality. We show that disagreement commonality can be a new measure of firm-specific information centering on analysts. We find a positive relationship between firms' commonality in disagreement and co-movement in their stock returns. A higher disagreement commonality may indicate lower usefulness of firm-specific information that strengthens the synchronicity between a firm's stock return and the market return. Our measure of disagreement commonality is especially useful among inefficient markets where analysts are heavily relied on by investors, such as Asia Pacific markets.