Impact Of Differences Of Opinions And Short-sale Constraint On Relative Returns Around Earnings Announcements

Miller (1977) hypothesizes that stock price would be overvalued if investors havedivergent opinions about the stock and the market has short sale constraint. In thisarticle, we use event study method to study the impact of differences of opinions andshort sale constraint on stock upward pricing around earnings announcement. We usethree distinct proxies to stand for difference of opinions. We prove that difference ofopinions reduces after the earnings announcement period. We then find that stocks oflarger differences of opinions and short sale constraint leads to larger overvaluationand these stocks’price drop more around the earnings announcement day.