KERRY XIAO

Vague Knowledge: Evidence from Analyst Reports (with Amy Zang)

People in the real world often possess vague knowledge of future payoffs, for which quantification is not feasible or desirable. We argue that language, with differing ability to convey vague information, plays an important but less-known role in representing subjective expectations. Empirically, we find that in their reports, analysts include useful information in linguistic expressions but not numerical forecasts. Specifically, the textual tone of analyst reports has predictive power for forecast errors and subsequent revisions in numerical forecasts, and this relation becomes stronger when analysts’ language is vaguer, when uncertainty is higher, and when analysts are busier. Overall, our theory and evidence suggest that some useful information is vaguely known and only communicated through language.

• Previously titled "Hardening Soft Information: Analyst Conservative Bias"

• Presented at HKUST, HKU, Tsinghua, CEIBS, CUHK Textual Analysis Conference 2017, Utah Winter Accounting Conference 2018, EAA 2018, AAA 2024, The Mediterranean Accounting Conference 2025

Vague Knowledge: Information without Transitivity and Partitions

I relax the standard assumptions of transitivity and partition structure in economic models of information to formalize vague knowledge—non-transitive indistinguishability over states. I show that vague knowledge, while failing to partition the state space, remains informative by distinguishing some states from others. Moreover, it can only be faithfully expressed through vague communication with blurred boundaries. My results provide microfoundations for the prevalence of natural language communication and qualitative reasoning in the real world, where knowledge is often vague.

• The theoretical foundation for Vague Knowledge: Evidence from Analyst Reports

Regulating Markets: Evidence from the PCAOB

How do regulators act to regulate markets? This study presents an economic framework with descriptive evidence. I argue that regulators, constrained by their powers and resources, utilize a regulatory portfolio across stakeholders and policy tools to influence markets. Analyzing the full spectrum of its activities, I find that the PCAOB employs diverse tools to target the entire financial reporting ecosystem, including auditors, audit committees, investors, preparers, and the public, rather than solely regulating auditors. Moreover, the PCAOB actively manages its regulatory portfolio by selecting specific activities. Overall, my findings suggest that regulators operate in a market-oriented and endogenous manner. 

• Policy-oriented research

• Presented at ABR-Fudan Joint Conference 2025