Salience theory and the cross-section of stock returns: The role of recency effects

Prof. Xin CHEN, Assistant Professor, WeBank Institute of Fintech, Shenzhen University

Date:         8 February 2023 (Wednesday)
Time:        3:00pm – 4:00pm
Venue:      Online via Zoom
Host:         Prof. Endong YANG, Assistant Professor of Finance
Zoom Link: https://umac.zoom.us/j/93621257798


This paper studies the role of recency bias plays in the negative relation between the salience theory value and stock returns. We find that a stronger salience effect when the largest salience distortion occurs toward the end of the month. This finding is robust when different market states are considered and when early reversals in a month are controlled for. We further demonstrate that recency bias is stronger when the largest salience distortion happens on Fridays and in stocks with high limits to arbitrage. Our results emphasize the importance of the timing of the day that is most salient in explaining the salient effect. Overall, the findings of this paper show that both the recency and noteworthy of an event are important sources in stock returns.


Prof. Xin CHEN is an Assistant Professor of Finance in Shenzhen University, and received his PhD from Tsinghua University in 2019. His research investigates behavioral finance, empirical asset pricing and macroeconomics. His papers have been published or accepted in Journal of Finance, Management Science and Pacific-Basin Finance Journal.

All are welcome!