Work

Salience Theory and the Cross-Section of Stock Returns: International and Further Evidence

Year: 2020

Type: article

Abstract: Motivated by existing evidence of the salience theory (ST) effect in the United States, we investigate its importance in 49 countries over the past three decades. Initial results suggest a negative relationship between the ST measure and future returns. The underperformance of low ST stocks is the strongest in countries with high idiosyncratic risk. However, the salience effect has three vital limitations. First, a substantial part of the anomaly can be attributed to the short-term return reversal. Second, it is priced primarily among microcaps. Third, the premium is realized predominantly following severe down markets and volatility spikes. Outside of microcaps and extreme market conditions, the salience effect does not exist.

Source: Journal of Financial Economics

DOI: 10.1016/j.jfineco.2021.10.010

Authors: Nusret Cakici, Adam Zaremba

Institutions: Fordham University, Poznań University of Economics and Business, MBS School of Business

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,060

Funders: Narodowe Centrum Nauki, Narodowym Centrum Nauki