Topic :In Search of Animal Spirits:Evidence From Idiosyncratic Volatility of Emotions

Introduction of the Lecturer:

JianchengShen,the distinguished professor and doctoral supervisor of the Department ofFinance,Soochow University BusinessSchool,andvisiting professor of the University of Zurich,Switzerland.He served as a finance professor in Regent University and Taylor University in the United States.His research interests include empirical behavioral finance,theoretical asset pricing,artificial intelligence big data and neural experimental economics.In recent years,he has published more than 20 articles on international high-leveljournals,such as Journal of Banking and Finance,Journal of Financial Research,Journalof Futures Market,Journal of Real Estate Finance and Economics,Journalof Behavioral Finance,Information and Management,etc.In addition,he acts as a reviewer for the post of Journal of Asset Management,Journalof Business Research,Scientific Reports and the Swiss National Natural Fund.

Abstract:

This study examines the effect of "animal spirits" risk,measured by the idiosyncratic volatility of emotions(EMO),on asset prices.Portfolio analysis shows that a trading strategy consisting of a long position in a High-EMO quintile and a short position in a Low-EMO quintile generates an annualized alpha of 5.30%.Multivariate analysis suggests that a one-standard-deviation increase in EMO is associated with a 3.25% increase in stock returns.We further show that,instead of being a mispricing factor,EMO captures the risk premium of stockreturns,which indicates that EMO premia is a distinct phenomenon from the idiosyncratic volatility anomaly(Ang et al.,2006;2009).Moreover,the pricing effect of EMO is less significant for stocks with high institutional ownership and more significant for stocks with high individual ownership suggesting that the source of behavioral risk is from noise trading instead of informed trading.

Time:December18,2023 10:00-11:30

Venue: B321,ZhixinBuilding,CentralCampus