Salience Theory and the Cross-Section of Stock Returns: International and Further Evidence

60 Pages Posted: 17 Dec 2020 Last revised: 6 Feb 2021

See all articles by Nusret Cakici

Nusret Cakici

Fordham University

Adam Zaremba

Poznań University of Economics and Business; Montpellier Business School

Date Written: December 17, 2020


The salience theory perspective on asset prices implies that investors overvalue stocks with salient upsides while undervaluing firms with salient downsides. The resulting mispricing is subsequently reverted—producing a predictable pattern in the cross-section of returns. This study is the first to perform an international examination of this phenomenon. We demonstrate that the salience effect prevails globally, and it is augmented by country-specific illiquidity. However, it is priced only among microcaps—accounting for a minuscule fraction of total market capitalization. Additionally, the premium is primarily realized following severe down markets and volatility spikes. Outside of these extreme market segments and states, the salience anomaly does not exist.

Keywords: salience theory, probability weighting, microcaps, asset pricing, firm size, return predictability, equity anomalies, international markets, replication

JEL Classification: D03, G11, G12, G14

Suggested Citation

Cakici, Nusret and Zaremba, Adam, Salience Theory and the Cross-Section of Stock Returns: International and Further Evidence (December 17, 2020). Available at SSRN: or

Nusret Cakici

Fordham University ( email )

Fordham University
Graduate School of Business
New York, NY 10023
United States
2126366776 (Phone)

Adam Zaremba (Contact Author)

Poznań University of Economics and Business ( email )

al. Niepodległości 10
Poznań, 61-875


Montpellier Business School ( email )

2300 Avenue des Moulins
Montpellier, Occitanie 34000

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