Research Fields: Corporate Finance, Information Economics, & Financial Markets

Topics: Financial Innovation & Technology, Information Design, Entrepreneurial Finance, Real Options, China's Financial System.

Working Papers     

(with Steven Grenadier and Yunzhi Hu) | Accepted, Journal of Financial Economics | Link to Abstract

  • Interventions not only solve coordination problems but also affect subsequent interventions through altering the informational environment. 
  • Optimal policy trades off endogenous correlation of intervention outcomes and agents' unfavorable conditional inference
  • Depending on relative intervention capacities, stronger initial intervention is often beneficial, informational externality leads to over- or under- interventions, and some funds are "too big to save first"

Asian Finance Association Best Paper Award 
Econometric Society (Kyoto), 
Chicago Booth, CKGSB, EPLF, Finance Theory Group Colorado Boulder Meeting, AsianFA (Seoul), Peking Guanghua, HEC Lausanne, SFI, SHUFE, USC Marshall, Wharton Liquidity Conference, Auckland Finance Conference, 

Media Coverage: Chicago Booth Review     

(with Zhiguo He)  | Conditionally Accepted, Review of Financial Studies | Link to Abstract    
  • Distributed ledger technologies such as blockchains feature decentralization to generate robust consensus and reduce intermediary rents 
  • Decentralized consensus enlarges contracting space, improves enforcement, enabling the creation of smart contracts which mitigate information asymmetry and enhance competition. 
  • The irreducible information distribution in generating decentralized consensus may encourage collusion.

Best Paper Award in the 25th Conference on the Theories and Practices of Securities and Financial Markets

AEA/AFE, TAU Finance Conference, Cavalcade Asia-Pacific, LeBow/GIC/FRB Conference on Cryptocurrencies in the Global Economy, RFS FinTech Conference (Cornell Tech), AMAC Fintech and Smart Investing Workshop, CEIBS Behavioral Finance and Fintech Forum, FOM (Finance, Organization and Markets) Conference, SFM Conference, NBER Competition and IO of Securities Markets, Chicago Booth, University of Notre Dame, NBER Financial Market Regulation, FRB Philadelphia FinTechCUHK Econ, RFS FinTech Workshop (Columbia), HBS 

Media Coverage: Chicago Booth Review; Ximalaya FM 

Related to the monograph "Disruption by Blockchain?" (with Jingtao Zheng) | 2016 Version Available upon Request

Credit Allocation under Economic Stimulus: Evidence from China
Haoyu Gao, Jacopo Ponticelli, and Xiaoguang Yang) | Revise and Resubmit, Review of Financial Studies | Link to Abstract   
  • Due to financial frictions, recessions and credit expansions can reverse the efficient reallocation of resources from less productive to more productive firms --- a process that characterized China's high growth in early 2000s. 
  • China's stimulus-driven increases in credit supply led to greater corporate borrowing and disproportionately favored state-owned firms and firms with lower marginal product of capital. 
  • The credit expansion moderately increased firm investment and employment, and the favorable allocation to stated-owned firms boosted employment.
CFRC Best Paper Award (New Structural Financial Economics)
Macro Financial Modeling Winter Meeting, China International Conference in Macroeconomics (scheduled), Harvard Econ/HBS, BoC-UoT Conference on the Chinese Economy, Yale Junior Finance Conference, Northwestern Kellogg, WFA, FIRS, NBER Macro, Money and Financial Frictions, NBER International Finance and Macroeconomics, CFRC, NBER Chinese Economy, Texas Finance Festival, CICF, AsianFA, EIEF, University of Notre Dame, HKU, Bristol, Purdue, SAIF, SAEe, Chicago Booth
Media Coverage: Chicago Booth Review
e-axes: 360o Econ ViewBloomberg

Rise of Factor Investing: Asset Prices, Informational Efficiency, and Security Design 
(with Douglas Xun Xu) | Revise and Resubmit, Journal of Finance | 
Link to Abstract
  • Financial innovations such as ETFs, smart beta products, and many index-based composite securities facilitate trading common factors, and can attract both informed and liquidity traders. 
  • Optimal designs feature selecting liquid assets representative of the factors.
  • Introducing these composite securities leads to asset pricing implications broadly consistent with recent empirical findings.
FIRS, Econometric Society (Hong Kong), CICF, AsianFA, UBC Summer Finance, Chicago Booth, University  of Exeter, HKUST, INSEAD, NBER Market Microstructure

Revise and Resubmit, Management Science Link to Abstract

  • Sellers of real options may prefer a later option exercise because the information rent she pays to the winning bidder increases her "virtual strike price". Timing the sale may endow her partial control over the option exercise due to the irreversible nature of time.
  • As long as the seller is not too "biased" towards early option exercise, auctions are inefficiently delayed; otherwise auction timing is efficient but option exercises are always inefficiently delayed.
  • When bidders can initiate sales in SPAs and English auctions, they always do, regardless of the divergent preferences for option exercise, and whether bids are in cash or regular securities. 

PhD Forum Prize at the Australasian Finance and Banking Conference
Finance Theory Group Best Paper Award (Runner-up)
Shmuel Kandel Award in Financial Economics
AFBC Zephyr Prize for Best Paper in Corporate Finance  
AEA, Stanford GSB, Northwestern Kellogg, Minnesota Carlson, Notre Dame Mendoza, UIUC, NYU Stern, BU, Wharton, UT Austin, UCLA Anderson, UBC Sauder, Chicago Booth, Michigan State, HKUST, INSEAD, Tokyo University, Finance Theory Group LA Meeting, Trans-Atlantic Doctoral, ABFC, and CICF 

Media Coverage: Capital Ideas | Originally part of the manuscript "Auctions of Real Options", 2014 Version Available upon Request

(with Ehsan Azarmsa)  | Under Review | Link to Abstract
  • Entrepreneurs' endogenous experimentation alters the informational environment but not the project cash flows. The associated moral hazard of information production reduces the insider investor’s interim rent and hinders relationship formation. 
  • Investor sophistication and interim competition mitigate the problem, and can explain the non-monotone empirical pattern linking relationship lending formation and competition. 
  • A robust contractual solution achieves the first-best outcome, and involves the entrepreneur's optimally issuing warrants to early investors to purchase convertible securities later, and selling residual claims to subsequent competitive outsiders.

EFA The Wharton School - WRDS Outstanding Paper in Corporate Finance

Oxford Financial Intermediation Theory (OxFIT) Conference, USC Marshall, Princeton, MIT Sloan Junior Finance Conference, UBC Sauder, Chicago Booth, Boston University, Eastern Finance Association Meeting, Midwest Finance Association Meeting, Peking GuanghuaHAND Economics Forum, Wharton WINDS, Chicago Booth Micro-Lunch, Berkeley Haas, Washington University in St. Louis

Media Coverage: Chicago Booth Review

(with Yizhou Xiao) | Working Paper | Link to Abstract  

  • Economic processes such as crowdfunding involve information aggregation, sequential sales, learning, and all-or-nothing (AoN) rules that contingent financing on achieving certain fundraising targets.
  • AoN leads to uni-directional cascades and more aggressive endogenous pricing, consequently only UP-cascades are possible, and they occur later and are more likely to be correct with more investors.
  • Financing feasibility and efficiency,  as well as information production all improve relative to standard settings with information cascades, and approach the first best when the crowd becomes large.

Stanford SITE Summer Workshop (scheduled), European Finance Association Meeting (scheduled, Warsaw), FERM (scheduled), CICF (scheduled), Bergen FinTech Conference (scheduled, Norway), Summer Institute of Finance Conference (scheduled), FIRS (scheduled), 2nd Emerging Trends in Entrepreneurial Finance Conference (scheduled), European Winter Finance Summit, Midwest Finance Association Meeting, 1st World Symposium on Investment Research, Chicago Financial Institutions Conference, FIRN Sydney Market Microstructure Meeting, Minnesota Junior Finance Conference, RSFAS Summer Camp, UIC, CUNY Baruch, University of Washington.

Media Coverage: Ximalaya FM

(with Yizhou Xiao) | Working Paper | Link to Abstract                      
  • In PE and VC industry, fund heterogeneity and deal flows are endogenous and often have complementarity. 
  • Persistence in fund returns (before or after fee) and manager compensation can arise without or with little skill heterogeneity, through a generalized version of the Matthew Effect.
  • Funds that persistently outperform encourage greater innovation and attract better entrepreneurs with seemingly worse terms. 
  • Contracts' interaction allows rent management through backloading across contracts, and links individual contracts to aggregate market environment. 

European Finance Association Meeting (scheduled, Warsaw), Adam Smith Workshop, Northeastern Finance Conference (scheduled), NBER Corporate Finance, 6th Luxembourg Asset Management Summit, 1st Annual Private Markets Research Conference, SFM Conference, Chicago Booth, Rochester Simon School, ABFER, CUHK Shenzhen, Chinese Academy of Sciences, Frontiers of Finance, AsianFA, EFMA, CICF, SAIF   

Working Paper Link to Abstract

  • Common security bids in auctions of real options create moral hazard and distort investments. 
  • Optimal security delays option exercise but aligns incentives using down payment and non-uniform royalty.
  • Without seller's commitment to security design, all auctions are equivalent to cash auctions and are socially efficient.

Finance Theory Group Best Paper Award (Runner-up)
Shmuel Kandel Award in Financial Economics
Zephyr Prize for Best Paper in Corporate Finance 
PhD Forum Prize at the Australasian Finance and Banking Conference 
AEA, Stanford GSB, Northwestern Kellogg, Minnesota Carlson, Notre Dame Mendoza, UIUC, NYU Stern, BU, Wharton, UT Austin, UCLA Anderson, UBC Sauder, Chicago Booth, Michigan State Broad, HKUST, INSEAD, Tokyo University, Finance Theory Group LA Meeting, CICF, SFS Cavalcade, Trans-Atlantic Doctoral Conference, and Australasian Banking and Finance Conference 

Media Coverage: Capital Ideas   

  • Timing of information acquisition plays an important role in investments under uncertainty.
  • Costly learning leads to information asymmetry that accelerates high-value projects while delaying low-value projects.
  • With low market volatility or sufficient pledgeable liquidity for managers, contracting on learning restores social efficiency.
Best Paper Award (Finance) at the 11th Trans-Atlantic Doctoral Conference 2011

Stanford GSB, Trans-Atlantic Doctoral Conference, Stanford-Berkeley Joint Student Workshop

(with Sabrina Howell)  | Under Review | Link to Abstract
  • China's approval-based public listing system and IPO suspensions provide unique quasi-experimental variation in the supply of timely market access.
  • Suspension-induced delay has strong, immediate negative effects on patent applications and citations that endure after eventual listing.  The impacts on other firm outcomes are transient.
  • The results suggest delays increase uncertainty and reduce access to risk capital, disrupting firms' cumulative process of innovation infrastructure building and human capital development which hinder value creation.

AFA, NBER Chinese Economy, HKUST, HKU, NUS, NYU Shanghai, Changing Role of Stock Markets in Capital Formation, AsianFA, PKU, CICF, Econometric Society (Hong Kong), University of Washington, NYU Stern   

Media Coverage: Chicago Booth Review   

Price of Value and the Divergence Factor 
(with Nathan George and Guojun Wang | Under Review | 
Link to Abstract
  • Price of value , measured by the ratio of market price to accounting-based valuation, subsumes the power of B/P and various quality measures in predicting the cross-section of average returns. 
  • Price-of-value strategies generate significant higher risk-adjusted returns and provides a natural hedge against momentum crashes. 
  • A four-factor model using MKT, SMB, MOM, and a Price-Value Divergence (PVD) seems to improve over alternative factor models. 
UBC Summer Finance, Chicago Booth, Shanghai Tongji, Peking University, CIC Workshop, Ansatz Capital, IFABS. 

  • Many supposedly decentralized blockchain mining activities have witnessed the rise of mining pools, due to risk-sharing benefits. 
  • Pool concentration can be moderated through cross-pool diversification and endogenous pool fees. 
  • Larger pools charge higher fees in equilibrium and grows more slowly, which is consistent with empirical evidence from Bitcoin mining. 
Princeton University, FinTech, Credit and the Future of Banking Conference (scheduled, Rigi Kaltbad), LeBow/GIC/FRB Conference on Cryptocurrencies in the Global Economy, Northern Finance Association Conference, George Mason University, CUNY Baruch, NYU Stern 

  • Cryptocurrencies and tokens serve as means of payment in decentralized networks, and constitute an attractive store of value by capturing future system growth. 
  • Native tokens accelerate adoption and moderate its fluctuation, with prices dependent on user base, platform productivity, agents' transaction needs, and expected token appreciation. 
  • We characterize the joint dynamics of price and adoption, taking into account contemporaneous and inter-temporal user-base externalities.
Finance Theory Group London Meeting (scheduled), Chicago Booth, 3rd Rome Junior Finance Conference (scheduled), 2nd Emerging Trends in Entrepreneurial Finance Conference (scheduled), Finance UC International Conference (scheduled), JOIM Conference on FinTech (scheduled), Norwegian School of Economics (scheduled), CityU of Hong Kong Finance Symposium (scheduled), Shanghai Forum (scheduled),  LeBow/GIC/FRB Conference on Cryptocurrencies in the Global Economy 

Work in Progress
  • Tokenomics: Coin Offerings, Business Acceleration, and Frauds  

Other Publications

  • Earthquake Ruptures on Rough Fault
    with Eric DunhamDavid Belangerand Jeremy Kozdon)
    Multiscale and Multiphysics Processes in Geomechanics
    , Ronaldo I. Borja, ed. (2011),
    Springer Series in Geomechanics and Geoengineering 

    Natural fault surfaces exhibit roughness at all scales, with root-mean-square height fluctuations of order 10^−3 to 10^−2 times the profile length. We study earthquake rupture propagation on such faults, using strongly rate-weakening fault friction and off-fault plasticity. Inelastic deformation bounds stresses to reasonable values and prevents fault opening. Stress perturbations induced by slip on rough faults cause irregular rupture propagation and the production of incoherent high-frequency ground motion.

  • Earthquake Ruptures with Strongly Rate-Weakening Friction and Off-Fault Plasticity: 2. Non-planar Faults
    (with Eric DunhamDavid Belangerand Jeremy Kozdon)
    Bulletin of the Seismological Society of America, (2011), 101(5), 2308-2322 

    Observations demonstrate that faults are fractal surfaces with deviations from planarity at all scales. We study dynamic rupture propagation on self-similar faults having root mean square (rms) height fluctuations of order 10^-3 to 10^-2 times the profile length. Our 2D plane strain models feature strongly rate-weakening fault friction and off-fault Drucker–Prager viscoplasticity. The latter bounds otherwise unreasonably large stress concentrations in the vicinity of bends. Our choice of a cohesionless yield function prevents tensile stress states and thus fault opening. A consequence of strongly rate-weakening friction is the existence of a critical background stress level above which self-sustaining rupture propagation, in the form of self-healing slip pulses, first becomes possible. Around this level, at which natural faults are expected to operate, ruptures become extremely sensitive to fault roughness and exhibit substantial fluctuations in rupture velocity. Except for shallow inclinations of the maximum compressive stress to the fault (less than about 20°), the fluctuations are anticorrelated with the local fault slope. These accelerations and decelerations of the rupture, together with naturally emerging slip heterogeneity, excite waves of all wavelengths and result in ground acceleration spectra that are flat at high frequency, consistent with observed strong motion records.

  • Earthquake Ruptures with Strongly Rate-Weakening Friction and Off-Fault Plasticity: 1. Planar Faults
    (with Eric DunhamDavid Belangerand Jeremy Kozdon)
    Bulletin of the Seismological Society of America, (2011), 101(5), 2296-2307 

    We study dynamic rupture propagation on flat faults using 2D plane strain models featuring strongly rate-weakening fault friction (in a rate-and-state framework) and off-fault Drucker–Prager viscoplasticity. Plastic deformation bounds stresses near the rupture front and limits slip velocities to ∼10 m/s, a bound expected to be independent of earthquake magnitude. As originally shown for ruptures in an elastic medium (Zheng and Rice, 1998), a consequence of strongly rate-weakening friction is the existence of a critical background stress level at which self-sustaining rupture propagation, in the form of self-healing slip pulses, is just barely possible. At higher background stress levels, ruptures are cracklike. This phenomenology remains unchanged when allowing for off-fault plasticity, but the critical stress level is increased. The increase depends on the extent and magnitude of plastic deformation, which is influenced by the orientation of the initial stress field and the proximity of the initial stress state to the yield surface.

  • Interrogating Single Molecules   (with Alexander Wissner-Gross)
    Bulletin of the Seismological Society of America, (2011), 101(5), 2308-2322 

    The development of nanotechnology relies heavily on the ability to observe and probe at molecular scales. Thus, breakthroughs in instrumentation and techniques play a significant role in the advancement in nanoscience. In this article, we survey recent developments in observing, trapping, and probing single molecules in solution. We give particular attention to patents that cover enabling instrumentation in each of these related areas including, respectively, fluorescence imaging, optical tweezers, and anti-Brownian traps. We conclude by highlighting a broad trend in the literature and patent base from observation toward active interrogation of single molecules in solution. 

  • On Wilson’s Theorem and Polignac Conjecture   (with Zhipeng Li)
    Mathematical Medley, Singapore Mathematical Society, (2005), 6(1) 

    We introduce Wilson’s Theorem and Clement’s result and present a necessary and sufficient condition for p and p + 2k to be primes where k ∈ Z^+. By using Simionov’s Theorem, a generalized form of Wilson’s Theorem, we extend Clement’s result and characterize Polignac twin primes. A straightforward method for determining the coefficients in the derivation is also proposed and discussed.

  • Development of Materials for Nanomagnetic Applications   (with U. A. Cheah)
    Proceedings of Technology and Engineering Research Program (Singapore), Sep 2004  

    Nanostructured FeCo based alloys have potential applications in many areas. We use two techniques to prepare FeCo based nanomagnetic alloys: mechanical alloying from elemental powders Fe and Co and chemical synthesis using chemical reduction to process FeCo nanoparticles. We characterize the prepared powders using Scanning Electron Microscope (SEM), X-Ray Diffractometer (XRD), Transmission Electron Microscope (TEM), as well as Vibrating Sample Magnetometer (VSM). For mechanical alloying technique, an increase of powder size was observed from 50 min to 100 min; the elemental powders were alloyed after 200 min of milling at 300 rpm; longer time of milling led to a significant reduction in powder size, especially for 5 h to 15 h of milling; a banded nanostructure was formed in 5 h as milled powders; an initial increase in saturation magnetization (Ms) indicated the alloying process, the magnetic properties was not superior soft and coercivity (Hc) increased a lot with milling time. FeCo alloy powders chemically synthesized were variable with reaction environment. Higher FeCl2 solution compared to CoCl2 solution produced a nano-chain structure alloy powders with composition near Fe70Co30; higher CoCl2 produced spherical alloy powders with composition Fe30Co70. Applied magnetic field during reaction affected the chain formation. No crystalline phase in chemical synthesized powders could be distinguished from XRD analysis. Chemically synthesized cobalt was magnetically softer than chemically synthesized Fe and FeCo based alloys. We contrast the two techniques. Chemical synthesis method is useful for introducing surfactant and polymer coating in to the process which have not been successfully carried out before using other methods. The various applications of the nanomagnetic powders thus developed include Drug-targeting Technology and Data Storage Technology.

  • Discussion on Benford’s Law and Its Applications   (with Zhipeng Li and Huajia Wang)
    Mathematical Medley, Singapore Mathematical Society, (2004), 12(2) 

    The probability that a number in many naturally occurring tables of numerical data has first significant digit (i.e., first non-zero digit) d is predicted by Benford’s Law Prob (d) = log_10 . (1 + 1/ d) . , d = 1, 2 . . . , 9. Illustrations of Benford’s Law from both theoretical and real-life sources on both science and social science areas are shown in detail with some novel ideas and generalizations developed solely by the authors of this paper. Three tests, Chi-Square test, total variation distance, and maximum deviations are adopted to examine the fitness of the datasets to Benford’s distribution. Finally, applications of Benford’s Law are summarized and explored to reveal the power of this mathematical principle.