Salience and Short-term Momentum and Reversals

Prof. Jianfeng YU
Chair Professor of Finance
Vice Chair of Tsinghua Fintech Research Institute
Director of Research Center for Asset Management
Tsinghua University

Date: 22 November 2024 (Friday)
Time: 10:30 to 12:00
Venue: E22-G013
Host: Prof. Jing XIE, Associate Professor in Finance

Abstract

We measure firm-level deviation salience (DS) as the return divergence between individual stocks and their peers. We find that the predictive ability of the past month’s stock performance for future returns strongly depends on the level of DS. High-DS stocks exhibit short-term reversals with a return spread of -1.30% per month, whereas low-DS stocks display return continuation with a return spread of 1.41% per month. The result is robust after controlling for the effects of size, illiquidity, volatility, and turnover. Our finding is consistent with the story that investors are prone to overreact to salient information but underreact to non-salient information.

Speaker

Prof. Jianfeng YU is Chair Professor of Finance, Director of Research Center for Asset Management, and the Vice Chair of Tsinghua Fintech Research Institute at PBC School of Finance, Tsinghua University. Before joining PBC School of Finance, Yu was a Piper Jaffray Professor in Finance at the Carlson School of Management, University of Minnesota. He conducts both theoretical and empirical research on behavioral finance and macro finance. His research is published in academic journals such as American Economic Review, Journal of Finance, Journal of Financial Economics, Journal of Monetary Economics, Management Science, Review of Economic Dynamics, and Review of Financial Studies.

Prof. YU holds a B.Sci. in Probability and Statistics from University of Science and Technology of China, an M.A. in Statistics from Yale University, and a Ph.D. in Finance from the Wharton School of Business, University of Pennsylvania. His research has won various awards including the Smith-Breeden First Prize, Chicago Quantitative Alliance Academic Competition First Prize, Inaugural AQR Insight Award (honorable mention), Crowell Memorial Prize (Third Prize) from PanAgora Asset Management, and the Institute for Quantitative Research in Finance (Q-Group) Research Award.

All are welcome!