NBER Working Papers by Hongjun Yan

Using holdings data on a representative sample of all Shanghai Stock Exchange investors, we show that increases in the fraction of market participants who own a stock predict low returns: highest change quintile stocks underperform lowest quintile stocks by 23 percent per year. This is consistent with ownership breadth primarily reflecting popularity among noise traders rather than the amount of negative information excluded from prices by short-sales constraints. But stocks in the top decile of wealth-weighted institutional breadth change outperform the bottom decile by 8 percent per year, suggesting that breadth measured among sophisticated institutional investors who cannot short does reflect missing negative information. The profitability of institutional trades against retail investor...

This paper presents a dynamic equilibrium model of bond markets, in which two groups of agents hold heterogeneous expectations about future economic conditions. Our model shows that heterogeneous expectations can not only lead to speculative trading, but can also help resolve several challenges to standard representative-agent models of the yield curve. First, the relative wealth fluctuation between the two groups of agents caused by their speculative positions amplifies bond yield volatility, thus providing an explanation for the "excessive volatility puzzle" of bond yields. In addition, the fluctuation in the two groups' expectations and relative wealth also generates time-varying risk premia, which in turn can help explain the failure of the expectation hypothesis. These implications, ...