Speaker: 康俊卿，中山大学
Title: A Flow-Based Cautious Trading of Unconsciousness
Language: Chinese
Time & Venue: 2024.04.17 10:00-11:00 腾讯会议: 134 153 280
Abstract: We model a financial market where some traders unconsciously neglect ‘new’ risks in risky asset payoffs. These unconscious traders trade ‘as if ’ there exist only the conventional risks and are unaware of the participation of the cautious traders who are informed about both conventional and new risks. Hence, the unconscious traders believe that the price is not informative and trade aggressively against price movement, which weakens the price overreaction arising from noise trading. With a moderate fraction of cautious traders, cautious trading injects sufficient information about the new risks into the price, making the unconscious traders significantly underreact to the price. Therefore, cautious trading of unconsciousness can produce momentum. Extension to multi-assets models shows that cautious trading of unconsciousness can lead to a cross-sectional momentum when new risks have heterogeneous impacts among assets. Dynamic extension produces feedforwards of the uncertainty from later to earlier generations that significantly affect time series return predictiveness.