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Does Disagreement Facilitate Informed Trading?

Published online by Cambridge University Press:  04 July 2025

J. Anthony Cookson,
Vyacheslav Fos and
Marina Niessner
J. Anthony Cookson
Affiliation:
University of Colorado Boulder Leeds School of Business tony.cookson@colorado.edu
Vyacheslav Fos
Affiliation:
Boston College Carroll School of Management fos@bc.edu
Marina Niessner*
Affiliation:
Indiana University Kelley School of Business
*
mniessne@iu.edu (corresponding author)
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Abstract

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Using high-frequency disagreement data from the investor social network StockTwits, we find that greater unsophisticated disagreement facilitates informed buying and selling. During periods of overvaluation, the facilitating effect of disagreement on trading is dampened for informed buyers but is amplified for informed sellers. These findings are unexplained by sentiment, news, and retail order flow, and they remain when we measure disagreement overnight and disagreement of technical investors, which alleviates the concern that disagreement and informed trading respond to a common shock. These findings suggest that informed traders respond meaningfully but differently to valuation changes induced by unsophisticated disagreement.

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 61 , Issue 2 , March 2026, pp. 612 - 639
Copyright
© The Author(s), 2025. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

This article has benefited from comments from an anonymous referee, Thierry Foucault (the editor), Asaf Bernstein, Snehal Banerjee, Vincent Bogousslavsky, Bruce Carlin, Shaun Davies, Clifton Green, Paul Koch, Ryan Israelsen, Will Mullins, Dmitriy Muravyev, and Shri Santosh, as well as from presentations at the 2021 Santiago Finance Workshop, 2022 Midwest Finance Association Meetings, Aarhus University, DePaul University, Iowa State University, INSEAD, the Chicago Fed, Florida State University, The University of Mississippi, Singapore Management University, Rochester, University of Birmingham (UK), University of Colorado Boulder, and University of Nebraska Lincoln. All errors are our own.

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