CAN GAO /tsæn/ /gaʊ/ 高璨
Assistant professor (tenure track since 2023), School of Finance, University of St.Gallen
Assistant professor, Swiss Institute of Banking and Finance
Faculty member, Swiss Finance Institute
Research affiliate, Leibniz Institute for Financial Research SAFE, Frankfurt
New: St.Gallen Financial Economics Workshop, co-organised with Konrad Adler since 2024
Working Papers
When No News is Good News: Multidimensional Heterogeneous Beliefs in Financial Market, with Brandon Yueyang Han.
Abstract: We demonstrate the asset pricing implications of investors’ belief heterogeneity in the frequency of news arrival and its joint impact with heterogeneous beliefs about news content. Investors trade volatility derivatives against each other to speculate on the rate of news arrival: greater disagreement of this kind gives rise to more extreme derivative positions. When disagreement about news arrival frequency is low, volatility exhibits mean reversion because extreme optimists and pessimists incur substantial wealth losses amid intense market swings. In contrast, high disagreement about the news arrival rate leads to volatility persistence. When news is absent in such environments, volatility sellers dominate, and extreme payoffs are underweighted in the formation of market expectations, resulting in lower implied volatility. In this context, “no news” effectively becomes good news for risky asset valuations.
Conferences: St. Gallen Financial Economics Workshop 2025, CEPR ESSFM 2025 (evening session), International Behavioural Finance Conference 2025
Seminars: École Polytechnique Fédérale de Lausanne, University of Lausanne, University of Maryland, CEMFI Madrid, Collegio Carlo Alberto.
Debt and Deficits: Fiscal Analysis with Stationary Ratios, with John Campbell and Ian Martin.
Abstract: We introduce a measure of a government's fiscal position that exploits cointegrating relationships among fiscal variables. The measure is a loglinear combination of tax revenue, government spending and the market value of government debt that---unlike the debt-GDP ratio---appears stationary in long historical data from the US and the UK and in postwar data from these and 14 other developed countries. The fiscal position must forecast either government debt returns or fiscal adjustment (a combination of high tax growth and low spending growth), or both. We find that fiscal adjustment, particularly through changes in spending, is the empirically relevant channel.
CICF Best Paper Award 2025.
Conferences: CEPR workshop on modelling of fiscal policy 2025, EFA 2025, SFI Research day 2025, CICF 2025, SAIF Annual Research Conference 2025, Turin Macro-Finance Workshop 2025, Adam-Smith Workshop 2025, CEPR Paris Symposium 2024, Macro-Finance Society 2024 Oslo, NBER Summer Institute 2023
Seminars: LIF-SAFE Frankfurt, NHH School of Economics, University of Lugano (USI), BIS, University of Cambridge, SFI brown bag, SSE, University of Hamburg, University of St. Gallen, Collegio Carlo Alberto, ESCP Business School, HSG-SoF Research Day 2024, Fulcrum Asset Management, Hong Kong University of Science and Technology (GZ), Copenhagen Business School, University of Washington, London School of Economics, Harvard.
Survey Expectations Meet Option Prices: New Insights from the FX Markets, with Pasquale Della Corte and Alexandre Jeanneret.
Abstract: This paper provides new insights into the risk preferences of FX market participants. The novelty of our approach is to exploit two forward-looking measures of currency return expectations: consensus forecasts from major financial intermediaries and currency option prices. To connect these expectations, we adopt a no-arbitrage framework coupled with more than twenty years of data on a large cross-section of currency pairs with maturities between one month and two years. We estimate a risk aversion level of approximately 4, indicating that FX investors receive a high premium for exposure to U.S. equity market return, variance, and tail risk. Also, we uncover that the term structure of risk aversion is upward-sloping in `good times' but turns downward-sloping during `bad times'. These findings offer a novel perspective on the horizon-dependent and dynamic nature of risk preferences in the FX market.
Supported by Canandian Derivative Institute.
The earlier draft circulated under the title: Expected currency returns and term structure of risk preferences.
Conferences: CDI Annual Conference 2025, Exchange rates workshop by BIS-ECB-BoI-BoB-BoS 2024, New methods and indicators in new markets at SDA Bocconi 2024, The economics of risk by BIS-ESM-EUI-CCA-HEC 2024, Swiss Finance Institute Research Day 2024, CUHK-RAPS Conference 2023, ICEEE 2023, QRFE Asset Pricing Workshop (Durham U) 2023, Vienna Symposium of FX 2022, Doctoral Consortium of the Asian Finance Association 2022
Seminars: University of Neuchatel, Collegio Carlo Alberto, HSG internal brown bag 2024, Bank of Canada, HKU, U of Laval, HEC Montreal, Fulcrum Asset Management, LIF-SAFE Frankfurt, HSG, UNSW.
What 200 Years of Data Tell Us About the Predictive Variance of Long-Term Bonds?, with Pasquale Della Corte, Deniel P.A. Preve and Giorgio Valente.
Abstract: We study the long-horizon risk profile of a currency strategy, whereby a US investor earns excess returns by entering in an unhedged long position in a foreign long-term bond funded at the domestic risk-free rate. After showing the drivers of the strategy returns, we derive and estimate their long-horizon predictive variance using data on long-term bonds denominated in major currencies over the past two centuries. We find that the long-horizon risk of such strategies increases with the investment horizon and that it is mainly driven by the uncertainty associated with the predictions of future returns originating from interest rate differentials and exchange rate returns.
AEFIN Best Paper on Fixed Income 2025.
Conferences: AEFIN 2025, HKIMR 2023, ABFER annual meeting 2022, Workshop on Bayesians in Finance 2022, 4th Asset Pricing Conference by LTI 2021, SoFiE 2019, Belgrade Symposium in Economics and Finance 2018
Seminars: University of Bergamo, BoE, HKMA, ESSEC, Fulcrum, CUHK.
Betting Against Correlations: A Measure of Global Market Risk, with Paul Schneider.
Abstract: We measure the systemic risk of FX exchange rates by relating the joint distribution of exchange rates to a distribution that assumes independence. A sharp upper bound of the distance between those two can be constructed through a quadratic portfolio problem where the representative agent bets against correlations among exchange rates. Using forward-looking information from the cross-section of option prices and consensus forecasts, we can compute the systemic foreign exchange risk in real-time, and investigate it in a broader macroeconomic context.
Conferences: Cancun Derivative Workshop 2022, Swiss Finance Institute Research Day 2022.
Publications
Volatility, Valuation Ratios and Bubbles: An Empirical Measure of Market Sentiment, with Ian Martin, Journal of Finance (2021), 76:6:3211‒3254.
Abstract: We define a sentiment indicator based on option prices, valuation ratios, and interest rates. The indicator can be interpreted as a lower bound on the expected growth in fundamentals that a rational investor would have to perceive to be happy to hold the market. The bound was unusually high in the late 1990s, reflecting dividend growth expectations that in our view were unreasonably optimistic. Our approach exploits two key ingredients. First, we derive a new valuation ratio decomposition that is related to the Campbell and Shiller loglinearization but that resembles the Gordon growth model more closely and has certain other advantages. Second, we introduce a volatility index that provides a lower bound on the market’s expected log return.
Sentiment Indicator Data (US Market, 1996-2019).
See the top of this page for a dynamic chart, updated occasionally.
UK application: Bank of England underground post.
Conferences: NBER Behavioral Finance 2019, CICF 2019, Econometric Society Asian 2019, FRIC 2019 (by CBS)
Seminars: Sveriges Riksbank, Fed NY, ECB, BoE, Duke, LSE.