Salience and Neglected Risk

Yolanda Yulong Wang, Long Yi

Research output: Contribution to conferenceConference paper


A long-short strategy that buys stocks having salient features and sells those that do not generates a monthly excess return of 48 basis points that is not explained by prominent factors. The portfolio generates positive returns in 31 out of 42 years in the sample period. The pattern is consistent with the salience theory of asset pricing in which investors overweight upside potential associated with salient features, but neglect risk associated with non-salient features. We show that the premium associated with stocks having salient features goes away once a stock loses its salient features. Those that maintain their salient features do not exhibit
negative excess returns compared with similar stocks. These results suggest the neglect of crash risk leads to the observed lower return of stocks with salient features. The results of this paper provide supporting evidence that salience plays an important role in inducing investors to neglect risk.
Original languageEnglish
Publication statusPublished - Jun 2023
EventAsian Finance Association Annual Meeting 2023 - UEH Building, The University of Economics Ho Chi Minh City, Ho Chi Minh City, Viet Nam
Duration: 26 Jun 202327 Jun 2023 (Link to official website) (Link to conference program)


ConferenceAsian Finance Association Annual Meeting 2023
Country/TerritoryViet Nam
CityHo Chi Minh City
Internet address

User-Defined Keywords

  • Mispricing
  • Salience
  • Neglected Risk


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