Hongjun Yan (炎宏军)

This site has been moved to https://sites.google.com/view/hongjunyan 

Professor of Finance 

Richard H. Driehaus Chair in Behavioral Finance 

DePaul University

Email: hongjun.yan.2011@gmail.com


  • Disagreement Beta, with G. Gao, X. Lu, and Z. Song, Journal of Monetary Economics, forthcoming, (July 2018)
    • Belief dispersion is a proxy for perceived investment opportunity: when two investors agree to disagree, both expect to profit from their trade at the expense of their trading partners.
    • High disagreement beta high return for stocks, corporate bonds, and MBS.
  • Uncertainty and Valuations, with Martijn Cremers, Critical Finance Review, 2016, 5: 85–128.
    • A litmus test for the idea that uncertainty about a firm’s profitability increases its stock valuation (e.g., tech stock during late 1990’s). This idea implies that uncertainty increases stock valuations but decreases corporate bond valuations. We test this using a number of uncertainty measures, and the evidence is generally not supportive of this idea.
  • Collateral-motivated Financial Innovation, with Ji Shen and Jinfan Zhang, Review of Financial Studies, 2014, 27 (10): 2961-2997.
    • Collateral frictions have a profound effect on our economic landscape, ranging from the design of financial securities, laws, institutions, to various rules and regulations.
  • Anticipated and Repeated Shocks in Liquid Markets, with Dong Lou and Jinfan Zhang, Review of Financial Studies, 2013, 26 (8), 1891–1912.
    • Treasury prices in the secondary market decrease significantly before auctions and recover shortly after, i.e., prices are low when the Treasury Department sells. This implies a billion dollar hidden issuance cost.
    • Winner of NASDAQ OMX Award for the Best Paper on Asset Pricing at WFA, 2011.
  • What Does Stock Ownership Breadth Measure?, with James Choi and Li Jin, Review of Finance 2013 17 (4) 1239-1278.
    • When you see lots of people piling their money into a stock.... Run away!
  • The Behavior of Individual and Aggregate Stock Prices, Mathematics and Financial Economics, 2011, 4 (2), 135–159.
    • News of the aggregate stock market has a significant impact on the pricing kernel, leading to the different behavior of individual and aggregate stock prices.
  • Is Noise Trading Cancelled Out by Aggregation?, Management Science, 2010, 56 (7), 1047–1059.
    • Individual biases often have a significant impact on the equilibrium at the aggregate level even if the biases are independent across investors.
    • Lead article
  • Equilibrium Asset Prices and Investor Behavior in the Presence of Money Illusion, with Suleyman Basak, Review of Economic Studies, 2010, 77, 914–936.
    • Money illusion, where investors (partially) overlook the impact of inflation, typically only leads to a negligible welfare loss on investors but has a considerable impact on the equilibrium.
    • An earlier version with an alternative preference-based formulation.
  • Heterogeneous Expectations and Bond Markets, with Wei Xiong, Review of Financial Studies, 2010, 23 1405-1432.
    • The relative wealth fluctuation, induced by heterogeneous expectations, affects the joint behavior of yield curve, bond premium, yield volatility, and trading volume.
  • Natural Selection in Financial Markets: Does It Work? Management Science, 2008, 54 (11), 1935-1950.
    • Selection is excessively slow. Even slightly different preference parameters can make a “very wrong” investor dominate the market.

Working paper:

  • Global Perspective or Local Knowledge: The Macro-information in the Sovereign CDS Market, with Y. Xiao and J. Zhang (August 2018.)
    • The sovereign CDS market can predict future stock index returns and bond yields.
    • The predictive power is almost entirely from the global, rather than country-specific, component of sovereign CDS spreads.
  • Anomaly Discovery and Arbitrage Trading, with Xi Dong, Qi Liu, Lei Lu, and Bo Sun (August 2018)
    • A simple model of anomaly discovery (with predictions on both asset prices and arbitrageurs' trading) and empirical evidence.
  • Under-reaction in the Sovereign CDS Market, with Y. Xiao and J. Zhang (coming soon)
    • Sovereign CDS spreads under-react to fundamentals.
  • Investing with Fast Thinking, with L. Liao, J. Xiang, Z. Wang, J. Yang (August 2018)
    • Under time pressure, investors rush to loans with high interest rates without paying sufficient attention to credit ratings.
    • First-hand experience matters for learning: "participants" learn more than "observers".
  • Funding Liquidity Shocks in a Quasi-Experiment: Evidence from the CDS Big Bang, with X. Wang, Y. Wu, and K. Zhong (June 2018)
    • R&R at Review of Financial Studies.
    • The CDS Big Bang increased the funding requirement for CDSs, especially for those with credit spreads further away from 100 b.p. and 500 b.p.
    • This natural experiment provides direct evidence on the effects of funding liquidity on limits of arbitrage and market liquidity.
  • In the Shadows of Government: Political Turnovers and Firm Perk Expenses, with H. Fang, Z. Li, N. Xu (February 2018)
    • Following the turnover of the party secretary or mayor of a city in China, firms headquartered in that city significantly increase their “perk spending”
  • Financial Intermediation Chains in an OTC Market, with Ji Shen and Bin Wei (May 2018).
    • Modern financial markets have long intermediation chains (many layers of intermediaries). This paper offers a theory and its empirical assessment.
    • Multiplicity and stability of the search equilibrium.
  • Reputation Concerns and Slow-Moving Capital, with Steven Malliaris (August 2018)
    • Reputation concerns lead to a preference for negatively skewed return (e.g., shorting puts), as well as slow-moving capital. 
  • Financial Innovation, Investor Behavior, and Arbitrage: Evidence from the ETF Market, with W. Jiang, (March 2016)
    • Regular ETFs improve liquidity; levered ETFs reduce liquidity.
    • Levered ETF investors pay 10% of the market cap (over $2 billion) each year to play this short-term speculation game.
  • A Search Model of Aggregate Demand for Liquidity and Safety, with Ji Shen, (May 2015)
    • An increase in the supply of Treasury securities decreases the credit spread of investment-grade bonds, but increases the spread between investment-grade and junk bonds. Contrast the reduced form “money-in-the-utility-function” approach with the approach that explicitly models trading friction.
    • Appendix with detailed proofs
  • Informed Trading and Expected Returns, with James Choi and Li Jin (January 2016)
    • “Big Data” approach to measure information asymmetry: We infer the degree of information asymmetry at the stock level from the transaction data of all investors in the market. Information asymmetry increases expected returns.
    • Featured at the NBER Digest
    • VOX Column
  • Multiplicity and Stability of OCT Market Equilibrium, with Ji Shen (coming soon)
    • There are usually 3 equilibria in an OTC market model, only one of them is “stable.”