Analyst Dispersion Uncertainty
In plain terms
When analysts strongly disagree about a company's earnings (wide high-low range vs the consensus), the stock tends to underperform.
How it works
Stocks with high dispersion in analyst EPS forecasts earn low future returns. The Miller (1977) optimist-holds mechanism plus short-sale frictions mean dispersion proxies disagreement; the optimist tail prices it up and the marginal trader sees risk. Short the high-dispersion bucket.
Data dependencies
- Daily prices
Adjusted-close OHLCV for every US-listed ticker; primary price feed.
- Analyst estimates
A data feed this strategy reads, refreshed on its normal schedule.
Expected edge
- Reported return
- ~-9.5%/yr top dispersion decile (DMS 2002)
- Tested over
- T+1 to T+90d
Diether-Malloy-Scherbina 2002 reports ~-9.5%/yr in the top-dispersion decile of NYSE-AMEX-NASDAQ.
Related families
When analysts disagree widely on a stock's earnings, it's overpriced (pessimists can't short-sell in size). Short high-dispersion, long low-dispersion.
A big overnight gap NOT preceded by an analyst revision is mispriced — the revision arrives ~5 days later and the price drifts further in that direction.
Listens to how steady management's tone is during analyst Q&A. If answers swing between confident and defensive, it usually signals trouble ahead.
Explore Analyst Dispersion Uncertainty on alphactor.ai
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