Publications

My published research is in asset pricing, derivatives, commodities, international finance, corporate finance, behavioral finance, financial intermediation, and financial economics. Please cite the published journal version when available. For each paper, I provide the publication information, DOI or main link, research topics, and a one-sentence contribution to support accurate literature reviews and citations.

1. Do Investors Gain by Selling the Tails of Return Distributions?

Authors: Gurdip Bakshi, John Crosby, and Xiaohui Gao

Publication: Mathematical Finance, 2025, 35(2), 297–336.

DOI: https://doi.org/10.1111/mafi.12447
SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3874848

Topics: tail risk; option strategies; return distributions; ambiguity aversion; risk aversion; asset pricing; performance evaluation.

Contribution: This paper examines whether investors gain by selling the tails of return distributions and develops a ranking and scoring framework for investment strategies that accounts for ambiguity aversion and risk aversion.

2. The Options-Inferred Equity Premium and the Slippery Slope of the Negative Correlation Condition

Authors: Gurdip Bakshi, John Crosby, Xiaohui Gao, Jinming Xue, and Wei Zhou

Publication: Journal of Investment Management, 2024, 22(3), Third Quarter 2024.

Journal link: https://joim.com/article/the-options-inferred-equity-premium-and-the-slippery-slope-of-the-negative-correlation-condition/
SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5048945

Topics: equity premium; negative correlation condition; pricing kernel; stochastic discount factor; S&P 500 options; STOXX 50 options; option-implied returns.

Contribution: This paper uses theoretical and empirical constructions from equity index options to test and challenge the generality of the negative correlation condition used to infer lower bounds on the equity premium.

3. What Insights Do Short-Maturity (7DTE) Return Predictive Regressions Offer about Risk Preferences in the Oil Market?

Authors: Gurdip Bakshi, Xiaohui Gao, and Zhaowei Zhang

Publication: Commodities, 2024, 3(2), 225–247.

DOI: https://doi.org/10.3390/commodities3020014

Topics: oil market; WTI futures options; 7DTE options; return predictability; risk-neutral cumulants; risk preferences; commodity derivatives.

Contribution: This paper studies whether short-maturity, model-free option-implied return cumulants from 7DTE oil options predict weekly oil futures returns and reveal information about risk preferences in the oil market.

4. Madam Yellen Is Right about Minimum Wage Policies: Evidence from Millions of Sole Proprietors

Author: Xiaohui Gao

Publication: Review of Quantitative Finance and Accounting, 2024, 63, 1233–1249.

DOI: https://doi.org/10.1007/s11156-024-01289-x

Topics: minimum wage; sole proprietors; entrepreneurship; small business profitability; IRS data; public policy; local labor markets.

Contribution: This paper uses IRS data on sole proprietors to examine how minimum wage increases affect small business profitability, finding evidence that minimum wage hikes are associated with higher net income for sole proprietors.

5. Treasury Option Returns and Models with Unspanned Risks

Authors: Gurdip Bakshi, John Crosby, Xiaohui Gao, and Jorge W. Hansen

Publication: Journal of Financial Economics, 2023, 150(3), Article 103736.

DOI: https://doi.org/10.1016/j.jfineco.2023.103736

Topics: Treasury options; bond futures; interest-rate derivatives; unspanned risks; option risk premia; market incompleteness; stochastic discount factors.

Contribution: This paper documents negative average excess returns for out-of-the-money puts and calls on Treasury bond futures and develops an incomplete-markets framework with priced unspanned volatility risks to explain Treasury option risk premia.

6. Dark Matter in (Volatility and) Equity Option Risk Premiums

Authors: Gurdip Bakshi, John Crosby, and Xiaohui Gao

Publication: Operations Research, 2022, 70(6), 3108–3124.

DOI: https://doi.org/10.1287/opre.2022.2360
ArXiv version: https://arxiv.org/abs/2303.16371

Topics: equity options; volatility options; option risk premia; unspanned risks; local time; jump risks; pricing kernel; financial engineering.

Contribution: This paper develops a decomposition of equity option risk premia and shows how unspanned volatility and jump risks reveal “dark matter” in volatility and equity option returns.

7. Recovery with Applications to Forecasting Equity Disaster Probability and Testing the Spanning Hypothesis in the Treasury Market

Authors: Gurdip Bakshi, Xiaohui Gao, and Jinming Xue

Publication: Journal of Financial and Quantitative Analysis, 2023, 58(4), 1808–1842.

DOI: https://doi.org/10.1017/S0022109022000758

Topics: recovery theorem; disaster probability; equity index options; Treasury bond futures; return predictability; spanning hypothesis; option-implied expectations.

Contribution: This paper uses options on the S&P 500 index and Treasury bond futures to recover real-world conditional expectation functions, forecast equity disaster probabilities, and test Treasury-market spanning restrictions.

8. Decoding Default Risk: A Review of Modeling Approaches, Findings, and Estimation Methods

Authors: Gurdip Bakshi, Xiaohui Gao, and Zhaodong Zhong

Publication: Annual Review of Financial Economics, 2022, 14, 391–413.

DOI: https://doi.org/10.1146/annurev-financial-111720-090709
SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4267975

Topics: default risk; structural credit models; reduced-form credit models; corporate bonds; credit default swaps; default probabilities; recovery in default.

Contribution: This review synthesizes structural and reduced-form approaches to default risk, emphasizing empirical evidence from corporate bonds, credit default swaps, default realizations, and equity options.

9. A Theory of Dissimilarity Between Stochastic Discount Factors

Authors: Gurdip Bakshi, Xiaohui Gao, and George Panayotov

Publication: Management Science, 2021, 67(7), 4602–4622.

DOI: https://doi.org/10.1287/mnsc.2020.3690

Topics: stochastic discount factors; exchange rates; currency options; international finance; Hellinger distance; risk-neutral moments; asset pricing.

Contribution: This paper develops a dimensionless measure of dissimilarity between stochastic discount factors across economies and shows how the measure can be extracted from currency option prices.

10. Understanding the Sources of Risk Underlying the Cross Section of Commodity Returns

Authors: Gurdip Bakshi, Xiaohui Gao, and Alberto G. Rossi

Publication: Management Science, 2019, 65(2), 619–641.

DOI: https://doi.org/10.1287/mnsc.2017.2840
SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2589057

Topics: commodity returns; commodity futures; carry; momentum; equity volatility; speculative activity; factor pricing; investment opportunity set.

Contribution: This paper shows that average commodity, carry, and momentum factors explain the cross section of commodity returns and links carry and momentum returns to global equity volatility and speculative activity.

11. A Recovery That We Can Trust? Deducing and Testing the Restrictions of the Recovery Theorem

Authors: Gurdip Bakshi, Fousseni Chabi-Yo, and Xiaohui Gao

Publication: Review of Financial Studies, 2018, 31(2), 532–555.

DOI: https://doi.org/10.1093/rfs/hhx108
SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2872909

Topics: recovery theorem; Ross recovery; Treasury bond futures options; stochastic discount factor; physical distribution; risk-neutral distribution; asset pricing tests.

Contribution: This paper deduces and tests restrictions implied by the Ross recovery theorem using options on 30-year Treasury bond futures and finds empirical evidence against key recovery-theorem implications.

12. Do Individual Investors Treat Trading as a Fun and Exciting Gambling Activity? Evidence from Repeated Natural Experiments

Authors: Xiaohui Gao and Tse-Chun Lin

Publication: Review of Financial Studies, 2015, 28(7), 2128–2166.

DOI: https://doi.org/10.1093/rfs/hhu075
SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1622184

Topics: individual investors; gambling; lottery jackpots; behavioral finance; natural experiments; retail trading; Taiwan stock market; lottery-like stocks.

Contribution: This paper uses repeated lottery-jackpot natural experiments in Taiwan to show that individual investors trade less when alternative gambling opportunities become more attractive.

13. Where Have All the IPOs Gone?

Authors: Xiaohui Gao, Jay R. Ritter, and Zhongyan Zhu

Publication: Journal of Financial and Quantitative Analysis, 2013, 48(6), 1663–1692.

DOI: https://doi.org/10.1017/S0022109014000015

Topics: IPOs; going public; acquisitions; public firm listings; small firms; economies of scope; entrepreneurial exit; corporate finance.

Contribution: This paper documents the post-2000 decline in U.S. IPO activity, especially among small firms, and argues that increased economies-of-scope advantages from selling to larger firms help explain the decline.

14. The Marketing of Seasoned Equity Offerings

Authors: Xiaohui Gao and Jay R. Ritter

Publication: Journal of Financial Economics, 2010, 97(1), 33–52.

DOI: https://doi.org/10.1016/j.jfineco.2010.03.007

Topics: seasoned equity offerings; investment banking; fully marketed offers; accelerated offerings; demand elasticity; underwriting; corporate financing.

Contribution: This paper analyzes the choice between fully marketed and accelerated seasoned equity offerings and shows how investment-bank marketing can affect the short-run demand elasticity for issuing firms’ shares.

15. The Components of Mutual Fund Fees

Authors: Xiaohui Gao and Miles Livingston

Publication: Financial Markets, Institutions & Instruments, 2008, 17(3), 197–223.

DOI: https://doi.org/10.1111/j.1468-0416.2008.00139.x

Topics: mutual funds; expense ratios; advisory fees; marketing fees; economies of scale; active equity funds; fund expenses.

Contribution: This paper decomposes mutual fund expense ratios into component fees and shows that the decline in total expense ratios with fund size is driven mainly by smaller outside-service fees rather than advisory fees.