25.) Investor Memory and Biased Beliefs: Evidence from the Field, with Z. Jiang, H. Liu, and C. Peng, accepted at Quarterly Journal of Economics.
Merging survey data on memories and expectations with trading data
Rising market => positive recall bias => more optimistic expectations
Recalled experiences are correlated with trading decisions through a belief channel
24.) Angry Borrowers: Ex-Post Effects of Social Shaming on Debt Repayment, with L. Liao, Z. Wang, J. Yang, C. Zhou, accepted at Management Science.
Empirical evidence on negative reciprocity: Privacy infringement during debt collection increases the default rate.
Best Paper Award at the 2020 GSU-RFS FinTech Conference
23.) Disclosing and Cooling-Off: An Analysis of Insider Trading Rules, with J. Deng, H. Pan, and L. Yang, forthcoming at Journal of Financial Economics.
In contrast to the conventional wisdom from “sunshine trading,” disclosure can even reduce the welfare of all investors.
Welfare implications of a cooling-off period depends on whether the disclosure policy is already in place.
22.) Personality Differences and Investment Decision-Making, with Z. Jiang, C. Peng, Accepted at Journal of Financial Economics.
Personality traits lead to persistent heterogeneity in investment decisions, through 3 channels: belief, preference, and social interaction.
Media coverage: BC Center for Retirement Research, Yahoo Finance, Wall Street Journal, AAII.
21.) Indirect Effects of Trading Restrictions: Evidence from a Quasi-Natural Experiment, with S. Wang, N. Zhong and Y. Tang, Journal of Corporate Finance
Trading restrictions in the stock market alter its information aggregation function, and so indirectly affect corporate bond prices.
20.) Firms and Local Governments: Relationship Building during Political Turnovers, with H. Fang, Z. Li, N. Xu, Review of Finance, forthcoming.
Following the turnover of the party secretary or mayor of a city in China, firms headquartered in that city significantly increase their “perk spending.”
19.) Anomaly Discovery and Arbitrage Trading, with X. Dong, Q. Liu, L. Lu, and B. Sun, Journal of Financial and Quantitative Analysis, forthcoming.
A stylized model of anomaly discovery (with predictions on both asset prices and arbitrageurs' trading) and empirical evidence.
18.) A Global Version of Samuelson's Dictum, with Y. Xiao and J. Zhang, American Economic Review: Insights, 2022, 4(2):239-54.
Samuelson's conjecture: more informational inefficiency at the macro level than at the micro level.
Our evidence: more informational inefficiency at the global level than at the country level.
Some of the results in this project were published in the following two papers:
17.) Global and Local Information Efficiency: An Examination of Samuelson’s Dictum, with Y. Xiao and J. Zhang, forthcoming, Journal of Empirical Finance.
More informational inefficiency at the global level than at the country level.
Strikingly similar patterns across stock and sovereign bond markets. Broadly consistent with models with information acquisition costs.
16.) Under-reaction in the Sovereign CDS Market, with X. Wang, Y. Xiao and J. Zhang, Journal of Banking and Finance, 2021, 130, 106191.
Under-reaction in the sovereign CDS market: Sovereign CDS momentum returns are positively skewed and higher during recessions.
15.) Reputation Concerns and Slow-Moving Capital, with S. Malliaris, Review of Asset Pricing Studies, 2021, 11 (3): 580–609.
Reputation concerns lead to a preference for negatively skewed return (e.g., shorting puts) and slow-moving capital.
14.) User Interface and First-hand Experience in Retail Investing, with L. Liao, J. Xiang, Z. Wang, J. Yang, Review of Financial Studies, 2021, 34 (9): 4486–4523.
A simple rule of thumb to cope with the time pressure in a peer-to-peer lending market: focus on interest rates.
The effect is stronger for mobile-based investors and those without first-hand experience of default.
13.) Funding Liquidity Shocks in a Quasi-Experiment: Evidence from the CDS Big Bang, with X. Wang, Y. Wu, and K. Zhong, Journal of Financial Economics 2021, 139, 545–560.
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.
12.) Financial Intermediation Chains in an OTC Market, with Ji Shen and Bin Wei, Management Science, 2020, 67(7): 4623–4642.
Modern financial markets have long intermediation chains (many layers of intermediaries). This paper offers a theory and empirical evidence.
11.) Biases in CDS Spreads after the CDS Big Bang, with X. Wang, and K. Zhong, Journal of Fixed Income, 2020, 30 (1): 71–80.
A note on how to correct the bias in CDS spread quotes after the Big Bang.
10.) Disagreement Beta, with G. Gao, X. Lu, and Z. Song, Journal of Monetary Economics, 2019, 107, 96–113.
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.
9.) 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.
8.) 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.
7.) 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.
6.) 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!
5.) 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.
4.) 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
3.) 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.
2.) 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.
1.) 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.