Disagreement on the Horizon
Abstract
Using data from The Motley Fool's social prediction platform CAPS we document substantial differences in stock predictions across investment horizons. Short- and long-horizon investors respond differently to macroeconomic events and firm news announcements. At the onset of the Covid-19 pandemic the sentiment of short-horizon predictions became sharply more negative while long-horizon predictions remained optimistic. Short-horizon investors also react more than twice as strongly as long-horizon investors to earnings surprises and technical view events. Around acquisition rumors short- and long-horizon investors update in opposite directions about the target: short-term investors become more optimistic while long-term investors become more pessimistic. Motivated by these findings we develop a firm-day measure of horizon disagreement spanning from 2006 to 2022 and find it relates significantly to abnormal trading. Additionally the disagreement-trading relation strengthens on earnings announcement days providing new evidence on the role of model disagreement.