Professor and graduate student receive top award for their paper exploring investor behaviour and stock returns

Recently, Andrei Semenov, an associate professor in the Department of Economics in the Faculty of Liberal Arts & Professional Studies, and Oriana Rahman, an economics PhD student in the Faculty of Graduate Studies, received the Ben Graham Center for Value Investing Award from the Ivey Business School at Western University, London, Ont., for the best paper in areas related to asset pricing, market anomalies and behavioral finance presented at the 26th Annual Conference of the Multinational Finance Society in Jerusalem. 

Andrei Semenov (left), an associate professor in the Department of Economics in the Faculty of Liberal Arts & Professional Studies, with Oriana Rahman, an economics PhD student in the Faculty of Graduate Studies

The efficient-market theory claims that asset prices fully and correctly reflect all available information, so that any future price changes are determined entirely by future news. However, many recent papers provide empirical evidence that market frictions can make the returns on individual stocks predictable (based on the return history) to some degree.  

In their paper titled “Investor behavior and stock returns,” Semenov and Rahman argue that, apart from the factors that can cause the predictability of stock returns, there might also be factors that have an opposite effect and weaken the influence of past returns on the current stock return.  

They investigate the impact of the anomalies in the investor’s behavior on the investor’s ability to forecast the returns on individual stocks and provide empirical evidence that taking into consideration the irrationality of investors can outweigh the effect of market frictions, thereby making the returns on individual stocks unpredictable based on past returns. 

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