Junyi Liao

Junyi Liao

PhD Candidate in Economics

Department of Economics

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English, Mandarin
Key Expertise
Macroeconomics, Behavioural Economics, Macro-Finance

About me

Junyi is a PhD job market candidate in the Department of Economics. His current research looks at how people's irrationality affects the financial market and aggregate economy.


Expertise Details

Macroeconomics; Behavioural Economics; Macro-Finance

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Over-/Under-reaction and Judgment Noise in Expectation Formation

The correlation coefficients between forecast errors and forecast revisions have been found to be positive at the consensus level, but negative at the individual level. Past literature has interpreted such discrepancy as evidence for underreaction to news at the aggregate level and overreaction at the individual level. In this paper, I challenge this view by arguing that noise in predictive judgment can account for the puzzling discrepancy. Using a stylized model, I examine how introducing judgment noise at the individual level changes the interpretation of the regression coefficients. First, a negative coefficient at the individual level no longer means overreaction. Second, the coefficient at the consensus level underestimates the degree of underreaction. Using forecast survey data, I provide evidence that judgment noise is large enough to reconcile the difference between the two coefficients. The structural parameter measuring over-/underreaction mostly points to underreaction.  

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Publications and additional papers

Work in progress

How does Bounded Rationality Affect Corporate Bond Liquidity? 
I analyze a macroeconomic model featuring both primary and secondary market of corporate bond, where investors choose to enter the secondary market endogenously. The interactions between investors’ entry decisions and their subjective belief about future corporate bond liquidity generate large amplifications, which helps to explain large market liquidity fluctuations in the corporate bond market. 


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Mark Schankerman

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Wouter den Haan
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Office Address
Department of Economics
London School of Economics and Political Science
Houghton Street, London WC2A 2AE