Journal of Risk

Uncovering the hidden impact: noninvestor disagreement and its role in asset pricing

Tingli Liu, JiaNing Liu, Junjun Ma and Yafei Tai

  • We introduce novel variables named social disagreement and noninvestor disagreement.
  • There are both synchronism and hysteresis relationships between social and investor disagreement.
  • Noninvestor disagreement can enhance the precision of asset pricing models.
  • We outline investment strategies with non-exclusivity that can outperform the market.

The existing literature predominantly focuses on investor disagreements and their implications for financial returns, but it typically ignores the significant influence of noninvestors (ie, people who do not physically trade securities). In response to this oversight, our study investigates the synchronism and hysteresis between social and investor disagreements, underpinned by an analysis of millions of noninvestment-oriented comments sourced from the Sina Weibo social media platform. For the convenience of research and description, we introduce a novel metric – noninvestor disagreement – that captures this hysteresis. Further, when integrated into an asset pricing model, this metric demonstrates the ability to capture residuals that fall outside the purview of the Fama–French model. Building upon these findings, we outline several investment strategies that not only outperform the market, but also can be symbiotic with other investment strategies, suggesting an inclusive approach to strategic financial decision-making. In summary, this research augments the field of asset pricing and behavioral finance, offering a robust methodology for harnessing information typically overlooked by investors, thus enhancing the interpretive ability of asset pricing models.

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