Correlation Neglect: A Behavioral Investing Phenomenon

A person smiles toward the viewer with the caption, "Jessica Wachter: Dr. Bruce I. Jacobs Professor in Quantitative Finance. On 'Correlation Neglect in Asset Prices.'

What if investors aren’t processing information as efficiently as we’ve assumed?

In “Correlation Neglect in Asset Prices,” Professor Jessica Wachter and her co-author Hongye Guo reveal a striking pattern in U.S. stock market returns tied to the quarterly earnings cycle. Their research shows that investors systematically overreact to repetitive earnings news — and then correct that mistake in the months that follow.

The cause is a behavioral phenomenon known as correlation neglect. Hear from Professor Wachter about this phenomenon on the Discoveries blog.

Events and Updates

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2026 Future of Finance Forum
On January 15, leaders from financial practice, regulation, and academia convened at Penn Washington to discuss the most pressing issues in modern finance – including stablecoins, central banking, U.S. debt, AI, geopolitics, and private markets. The Forum culminated in a fireside chat between Wharton Dean Erika James and Jackie Reses, W’92, CEO of Lead Bank.

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Social Security and Wealth Inequality
Professor Sylvain Catherine discusses how Social Security reshapes the picture of wealth inequality in America. Learn about Professor Catherine's research that won the Dimensional Fund Advisors prize for best paper in the Journal of Finance, as well as the Rodney White Center's Marshall Blume Prize for Financial Research.

WATCH THE INTERVIEW

Fireside Chat with Paul J. Taubman
The Harris Family Alternative Investments Program and the Wharton Undergrad Finance Club welcomed Paul J. Taubman, W’82, founder, chairman, and CEO of PJT Partners, for a conversation for Wharton students, moderated by Burcu Esmer, academic co-director of the Harris Program.

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In the News

A $7 Billion Test to the Loan Market
Professor Michael Roberts joined Bloomberg to discuss a $7 billion loan backing Blackstone and TPG's acquisition of Hologic.

How Will Stablecoins Impact Remittance Markets?
Professor Jessica Wachter was quoted in Fortune, weighing in on the struggle between crypto firms and legacy brands over control of international payments.

Former Fed Officials at the Future of Finance Forum
Former Fed leaders Patrick Harker, Donald Kohn, Randall Kroszner, and Loretta Mester engaged in a Future of Finance panel, moderated by David Wessel. Read coverage of this panel on American Banker.