Junyi Liao

Working Papers

Over/Underreaction to New Information and Noise in Expectations Formation Link (revise&resubmit, Management Science)

In forecast surveys of aggregate variables, there's a positive consensus-level correlation between forecast errors and revisions, but a negative individual-level correlation. Previous studies interpret this as aggregate-level underreaction and individual-level overreaction. I propose that noise in forecasts explains this discrepancy. A stylized model demonstrates that a negative individual-level coefficient doesn't necessarily indicate overreaction. By estimating a structural parameter for over/underreaction, I find that inflation forecasting demonstrates significant underreaction, while the model matches both individual and aggregate-level correlation coefficients. I study the implications of underreaction and noise in expectations in a permanent income hypothesis model.

Presented at: FIRS 2024, University of Essex 2024, Asia Meeting of Econometric Society 2023, Shandong University 2023, HKUST 2023, Jinan University 2023, Money, Macro and Finance Society 2023, China Financial Research Conference 2023

Adaptive Expectations and Over-/Under-reaction to New Information Link (revise&resubmit, Economica)

Recent empirical findings from forecast surveys reveal several puzzling patterns: (1) aggregate forecasts under-react to new information, (2) individual forecasts over-react to new information, and (3) forecasts initially under-shoot and then gradually over-shoot actual outcomes following shocks. While existing literature often relies on combining noisy information frameworks and extrapolation models to explain these phenomena, this article demonstrates that a simple benchmark adaptive expectations model can simultaneously account for these patterns both qualitatively and quantitatively.

Teaching

EC220 Introduction to Econometrics, London School of Economics   2018-2019

EC400 Mathematics for Macroeconomics and Microeconomics, London School of Economics   2018-2021

EC210 Macroeconomic Principle, London School of Economics   2019-2023

BE334 Financial Market and Monetary Policy, University of Essex   2023-2025

BE364 Global Trading on the Financial Market, University of Essex   2023-2024

BE357 Behavioral Finance, University of Essex 2024-2025