Disagreement about Public Information Quality and Informational Price Efficiency

Investor disagreement about public information precision can be pervasive and persistent. This paper shows that when investors agree to disagree about an observed public signal's precision, as they disagree more, informational price efficiency increases. By contrast, when investors disagree about a future public signal's precision, their disagreement reduces informational price efficiency. These results lead to interesting asset pricing implications. Relative to a benchmark without investor disagreement, both price efficiency and trading volume drop before announcements and then increase after announcements. Investor disagreement also contributes to price underreaction to public news