Junyi Liao

Working Paper

Noise, Signals, and Reaction in Expectations Link (revise&resubmit, Management Science)

I revisit the Coibion--Gorodnichenko (CG) and Bordalo--Gennaioli--Ma--Shleifer (BGMS) regression coefficients by distinguishing idiosyncratic noise---unrelated to belief updating---from informational signals in survey expectations. When disagreement is driven purely by noise, positive CG coefficients imply underreaction while negative BGMS coefficients arise mechanically. When signals and noise coexist, I jointly identify their magnitudes and the diagnosticity parameter measuring reaction to signals, exploiting that signals enter the diagnostic Kalman filter while noise does not. Across variables in SPF, SCE, and I/B/E/S, the diagnosticity parameter points to underreaction or rational reaction, not overreaction. Signals account for most disagreement among professional forecasters (SPF, I/B/E/S), while noise dominates among households (SCE).

Previously titled as "Over/Underreaction to New Information and Noise in Expectations Formation"

Presented at: University of Surrey 2026, 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

Publication

Adaptive Expectations and Reaction to Information Link (Economica 2026)

Adaptive expectations, when combined with noisy signals, can jointly reconcile four empirical moments documented in macro surveys. Empirical evidence favors adaptive expectations over Kalman-filter updating. 

Research Projects

Credit Constraint and Zero Lower Bound (with Jingfeng Zhang)

Bias in Macro Surveys: A Cross-Country Study

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

BE332 Options and Futures, University of Essex 2025-2026

BE650 Banking Theory and Practice, University of Essex 2025-2026