Salience theory and the cross-section of stock returns: International and further evidence

Cakici, Nusret; Zaremba, Adam

doi:10.1016/j.jfineco.2021.10.010

Cited by 58 publications

(2 citation statements)

References 159 publications

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“…One of the prominent features in financial markets is the correlation (positive or negative) between the price movements of different financial assets. The existence of a high degree of cross-correlation between the simultaneity of a set of stock returns is a well-known empirical fact [2,3]. Pearson's correlation coefficient provides information about the similarity in the behavior of specific stock price changes.…”

Section: Introductionmentioning

confidence: 99%

Multiscale Partial Correlation Analysis of Tehran Stock Market Indices: Clustering and Inter-Index Relationships

Imeni,

Bao,

Nozick

2024

JOSA

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This study delves into the intricate relationships among returns of diverse indices within the Tehran stock market, employing both Pearson and partial correlation coefficients as analytical tools. Utilizing monthly data from fourteen capital market indices, the investigation applies the k-means method for clustering based on four critical attributes: risk, efficiency, average industry index, and the number of companies within each industry. The findings reveal that when the total index is considered as a controlling variable, the partial correlation analysis yields distinct insights into the interconnections among market indices, thereby highlighting the significant influence of the total index on these relationships. Moreover, the clustering analysis categorizes the indices into three distinct groups: the first cluster exclusively comprises the total index; the second cluster includes indices from the automobile, pharmaceutical, metal, cement, chemical, and food sectors; whereas the remaining indices are allocated to the third cluster. This multifaceted approach not only elucidates the dynamic interplay between different stock market indices but also underscores the variability in their interrelations when viewed through the lens of a controlled variable. The study's methodological rigor and its innovative use of multiscale partial correlation analysis contribute to a deeper understanding of the factors shaping the Tehran stock market's behavior, offering valuable insights for investors, policymakers, and scholars alike.

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Section: Introductionmentioning

confidence: 99%

Multiscale Partial Correlation Analysis of Tehran Stock Market Indices: Clustering and Inter-Index Relationships

Imeni,

Bao,

Nozick

2024

JOSA

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“…where θ > 0 is a constant (in our study, we follow Cosemans and Frehen 2021 and set θ to 0.10); x s is the average payoff of the N lotteries under state s. The implication of salience theory on asset pricing is that, assets with more salient return upsides will be overpriced and vice versa. Cosemans and Frehen (2021) test such implications and find empirical support from the US market; Cakici and Zaremba (2022) re-examine the salience effect in the global market and find significant evidence in the Chinese market.…”

Section: Introductionmentioning

confidence: 99%

Market States and Lottery Preference: Evidence from Chinese Open‐End Funds*

Hsieh

2023

Asia-Pac J of Fin Stud

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Recent studies find that investors prefer funds with lottery‐like payoffs. Using a sample of Chinese open‐end funds, we show that investors' preference for funds' extreme positive payoffs (MAXs) depend on the state of the market: it is significant for MAXs in an unfavorable market but weak or reversed for those in a favorable market. Such state‐dependent preference is irrational because, inconsistent with the flow–MAX relationship, higher MAXs under market downturns are associated with worse performance. We further document support for the salience‐theory‐based explanation for investors' preference and provide counter‐evidence for alternative mechanisms based on rational choice or changes in aggregate flows.

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Cybersecurity

Marwala

2024

Mechanism Design, Behavioral Science and Artificial Intelligence in International Relations

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Salience theory and the cross-section of stock returns: International and further evidence

Cited by 58 publications

References 159 publications

Multiscale Partial Correlation Analysis of Tehran Stock Market Indices: Clustering and Inter-Index Relationships

Multiscale Partial Correlation Analysis of Tehran Stock Market Indices: Clustering and Inter-Index Relationships

Market States and Lottery Preference: Evidence from Chinese Open‐End Funds*

Cybersecurity

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