Ease-of-Processing Heuristics and Asset Prices: Evidence From Exchange-Traded Repo Market in China

46 Pages Posted: 1 Mar 2019 Last revised: 12 Jun 2019

See all articles by Xuyun Fang

Xuyun Fang

China Life Asset Management Company Ltd.

Zhiqian Jiang

Florida State University, College of Business, Department of Finance

Baixiao Liu

Florida State University

John J. McConnell

Purdue University

Mingshan Zhou

Southwestern University of Finance and Economics (SWUFE)

Date Written: May 15, 2019

Abstract

Prior to May 22, 2017, actual daily interest rates of Chinese exchange-traded repos on certain days of the week and on trading days prior to market-closed holidays exhibited remarkable seasonalities. On May 22, 2017, the exchanges changed the way in which rates were displayed such that investors need no longer infer actual repo maturities. Thereafter, the seasonalities disappeared. We interpret the seasonalities and their disappearance as being due to investors employing an ease-of-processing heuristic that was not required after May 22, 2017. An implication is that a cognitive bias on the part of investors caused the seasonalities in asset prices.

Keywords: Cognitive Biases, Asset Prices, Exchange Repo

JEL Classification: G12, G14

Suggested Citation

Fang, Xuyun and Jiang, Zhiqian and Liu, Baixiao and McConnell, John J. and Zhou, Mingshan, Ease-of-Processing Heuristics and Asset Prices: Evidence From Exchange-Traded Repo Market in China (May 15, 2019). Available at SSRN: https://ssrn.com/abstract=3331141 or http://dx.doi.org/10.2139/ssrn.3331141

Xuyun Fang

China Life Asset Management Company Ltd.

China Life Center
No. 17 Jinrong St., Xicheng District
Beijing, Beijing 100140
China

Zhiqian Jiang

Florida State University, College of Business, Department of Finance ( email )

Tallahassee, FL
United States

Baixiao Liu (Contact Author)

Florida State University ( email )

Tallahasse, FL 32306
United States

John J. McConnell

Purdue University ( email )

MGMT, KRAN
403 West State St.
West Lafayette, IN 47907-2056
United States
765-494-5910 (Phone)
765-494-7863 (Fax)

Mingshan Zhou

Southwestern University of Finance and Economics (SWUFE) ( email )

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

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