The Dispersion Effect in International Stock Returns

We find that stocks exhibiting high dispersion in analysts’ earnings forecasts do not onlyunderperform in the U.S. but also in many European countries. Testing for the dispersioneffect in many countries calls for adequate multiple testing controls and we show that theU.S. dispersion effect proves to be the only sustainable phenomenon under this paradigm.Rationalizing this finding, we argue that the European dispersion effects derive from a singlebet against the technology bubble while the U.S. dispersion effect delivers a more steadyreturn profile. We further establish the dispersion effect to be most pronounced among badnews stocks as reflected by dropped analyst coverage.[...]