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 Reactions to Information Link (revise&resubmit, Economica)

This paper develops a model combining adaptive expectations with noisy signals and derives three coefficients and one impulse response function (IRF): the Coibion–Gorodnichenko (CG) coefficient capturing consensus underreaction, the Bordalo–Gennaioli–Ma–Shleifer (BGMS) coefficient capturing individual overreaction, the Kohlhas–Walther (KW) coefficient capturing extrapolation, and the Angeletos–Huo–Sastry (AHS) IRF capturing delayed overshooting. There exists a parameter region in which the model reconciles all four moments with the data simultaneously. The model also delivers a testable prediction linking the CG coefficient to variable persistence, distinguishing adaptive expectations from Kalman-filter updating, and I present supporting evidence for adaptive expectations. The model’s fit to survey data is evaluated.

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