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Information and Diversity of Analyst Opinion

Published online by Cambridge University Press:  06 April 2009

Christopher B. Barry  and
Robert H. Jennings
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Abstract

This paper examines problems in the use of divergence of analyst opinion as a proxy for estimation risk in empirical studies of security returns and asset pricing models. We demonstrate that diversity of opinion can increase even though the amount of private information increases, and we show that diversity of opinion may overstate estimation risk if the capital market aggregates the information held by investors. We produce empirical results consistent with our conclusions. Specifically, we find that divergence of opinion can produce measures of estimation risk that are inconsistent with a received proxy for estimation risk and with observed common stock returns.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 27 , Issue 2 , June 1992 , pp. 169 - 183
Copyright
Copyright © School of Business Administration, University of Washington 1992

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