Research
(A) Working Papers
[1] Job Market Paper: Understanding the Impacts of Dark Pools on Price Discovery [PDF]
This paper investigates the impact of dark pools on the informativeness of prices (price discovery). Traders trade an asset in either an exchange or a dark pool, with informed traders having heterogeneous private signals, and the distribution of these signals is determined by the information precision level. We find that dark pools have an amplification effect on price discovery. That is, when information precision is high, adding a dark pool enhances price discovery, whereas when information precision is low, adding a dark pool impairs price discovery. The main force behind this result is a sorting effect: in equilibrium, traders with strong signals trade in exchanges, traders with modest signals trade in dark pools, and traders with weak signals do not trade. The paper produces novel empirical predictions regarding dark pools that reconcile the empirical evidence. The paper also provides regulatory suggestions on enhancing the informational efficiency of pricing in equity markets and in emerging markets.
[2] Information Diffusion with Centralized and Bilateral Trading
We find that, in an economy where the market is fragmented by a centralized exchange and a bilateral OTC market, traders' private information disseminates through OTC trading. But such diffusion exhibits an inverted U-shape with liquidity level in the centralized market. Also, such diffusion is asymmetric: ``good news" disperses faster than bad news. Finally, when exchange prices contain (public) information, it could ``crowd out" information diffusion in the OTC market.
[3] Monopoly Pricing with Time-Inconsistent Agents (with Jen-Wen Chang)
Time-inconsistency is an irrational behavior of consumers prevails in modern markets. For example, a consumer who bought a monthly plan usually finds it not to be used so frequently as he expected later on. We find the optimal contracts firms can use to exploit such behavior. In particular, we find conditions when a pooling equilibrium is better for the firm, and conditions when a separating equilibrium is better for the firm.
(B) Work In Progress
[4] Informational Learning and Dynamic Competition
We analyze the optimal dynamic strategy of firms who compete with each other while learning demand information. We show the equilibrium dynamics of learning and pricing. It can be used to explain the current price volatility in these types of market.
[5] A Nash-in-Nash Bargaining Game in Trading Networks
When agents trade within a core-periphery structured network, a nash-in-nash equilibrium is proved to exist. We study a novel and proprietary HFT dataset in China Foreign Exchange market for evidence of pricing and trading in this type of framework.
[6] Matching Companies in A Competitive Search Framework (with Simpson Zhang)
We analyze the add-value of a matching company in the search market. The benefit of the improved matching technology is found by its positive impact on the firm’s and worker’s matching functions. The resulting social welfare impacts are determined.
(C) Publications
[7] Household Saving and Urbanization in China, Journal of Economics Issues Inquiry, 2009(2), 7-12.
[8] Risk Management in the Life-cycle of Virtual Corporations (with B. Shi), Economic Research Guide, 2010(18), 31-33
[9] RMB Exchange Rate Reform and Corporate Risk Management (with B. Shi), Oriental Enterprise Culture, 2010(4), 83
(D) Presentations
11/2015 Anderson Management School PhD seminar, UCLA, CA
08/2015 Economic Theory Proseminar, UCLA, CA
03/2015 XVII Southwest Economic Theory Conference, University of Arizona, AZ
03/2015 Economic Theory Proseminar, UCLA, CA
03/2014 Economic Theory Proseminar, UCLA, CA
06/2013 3rd International Conference on “The Industrial Organisation of Securities and Derivatives Markets: Competition, Liquidity and Network Externalities”, Frankfort, Germany
12/2013 Economic Theory Proseminar, UCLA, CA
12/2012 Workshop in Finance, CUFE, China
06/2012 Economic Theory Proseminar, UCLA, CA