Economic Forecast Disagreement and Equity Pricing

Expectations play a central role in financial markets, yet investors often disagree about the economy’s future. Such disagreement has long been regarded as a potential driver of asset prices, but it remains uncertain whether it reflects mispricing or a priced source of risk. This study addresses the issue by constructing monthly disagreement indices from Consensus Economics forecasts across 24 OECD markets. Firm-level exposure to economic disagreement is estimated using return regressions. The results reveal pronounced cross-country heterogeneity. In developed markets, particularly the United States, greater exposure to disagreement consistently predicts lower future returns, supporting the mispricing hypothesis. In smaller markets, the evidence is mixed, with some cases indicating positive risk premia and others showing no significant effect. Overall, the findings provide new international evidence that the pricing of forecast disagreement is context-dependent, shaped by market structure and institutional depth.