Xiaomeng Lu

Associate Professor of Finance

FISF, Fudan University 


Contact:

Email: xiaomenglu@fudan.edu.cn

CV    School website   SSRN page 


Xiaomeng Lu is an associate professor of finance (without tenure) at Fanhai International School of Finance, Fudan University. Prior to joining FISF in 2021, she was an assistant professor of finance at Shanghai Advanced Institute of Finance (SAIF), Shanghai Jiao Tong University. She received her Ph.D. in Economics from Cornell University. She has a B.A. degree in Economics and a B.S. degree in Statistics from Peking University. Her research fields include empirical asset pricing, behavioral finance, FinTech, and household finance. She is also interested in topics related to the Chinese financial market. 


Publications

Abstract:  We document a novel platform effect caused by the emergence of  FinTech platforms in the intermediation of financial products.  In China, platform distributions of mutual funds emerged in 2012 and grew quickly into a formidable presence. Utilizing the staggered entrance of funds onto platforms, we find a marked increase of performance-chasing, driven by the centralized information flow unique to FinTech platforms. This pattern is further confirmed using proprietary data from a top platform.  Examining the platform impact on fund managers, we find that, incentivized by the amplified performance-chasing, fund managers increase risk taking to enhance their probability of getting onto the top ranking. 

Abstract: When two investors agree to disagree on market prospects and bet against each other, both expect to profit from their trades. Hence, an increase in disagreement leads to higher perceived trading profits and lower marginal utilities for both investors, so disagreement betas can affect cross-sectional asset returns. We construct a disagreement measure us- ing professional forecasts of U.S. macroeconomic fundamentals. Betas with respect to this disagreement factor positively explain cross-sectional returns of stocks, corporate bonds, mortgage-backed securities, and government securities. Further tests using portfolio-based test assets confirm the significant pricing power of the disagreement factor on top of in- fluential benchmark factors.

Abstract: We showthat the beta with respect to an index of global ex ante tail risk concerns (GRIX), whichwe construct using out-of-the-money options on multiple global assets, negatively drives cross-sectional return variations across asset classes, including international equity indices, foreign currencies, and government bond futures. The pricing power of GRIX becomes stronger when more asset-class-level tail risk concerns are incorporated in the index construction. GRIX also dominates asset-class-level tail risk concerns in pricing assets within each asset class. These evidences imply that the pricing effect of tail risk concerns works predominantly as a global channel. The GRIX pricing effect is distinct from that of tail risk factors based on historical realizations, consistent with the interpretation that tail risk concerns likely reflect investors' ex ante subjective belief about tail risk.


Working papers

Abstract:  We study household finance in the age of FinTech, where consumption, payments, and investments take place via all-in-one super-apps. We hypothesize that FinTech adoption can improve household risk-taking by breaking down the traditional physical and psychological barriers and enhance financial inclusion.  Taking advantage of an individual-level FinTech dataset, we find that higher FinTech adoption, both at the individual-level and the county-level instrumented by distance-from-Hangzhou, results in higher participation and more risk-taking in mutual-fund investments.  Moreover, individuals who are otherwise more constrained, those with higher risk tolerance or living in under-banked counties, stand to benefit more from the advent of FinTech.

Abstract: This paper studies how attention to certain investments affects investors’ consumption out of capital gains. We leverage granular account-level data from a leading mobile payment platform that connects mutual fund investments with expenditure records. Investments that attract more attention, elicit a greater consumption response. We first show that the marginal propensity to consume (MPC) out of capital gains is larger for more recent investments and better-performing ones. We then exploit two quasi-experiments that introduce exogenous variations in what funds are displayed first. Overall, our results suggest that retail investor attention affects their consumption behavior.

Abstract:  In existing behavioral finance literature on stock mispricing, rational investors largely play a passive role in tolerating mispricing due to limits to arbitrage. In this paper, we show that rational speculators sometimes proactively and intentionally create mispricing by driving up stock prices away from their fundamental values through synchronized attacks with explosive trading volumes. The inflated stock price is subsequently supported by new rounds of irrational buyers who are subject to extrapolation bias and by existing stockholders who are reluctant to sell due to the disposition effect. This paper develops a simple model to illustrate how bubble-creating attacks can succeed in equilibrium under certain limits-to-arbitrage conditions, and provides consistent empirical evidence in the Chinese stock market using investors' trading data from a large brokerage company in China.

Abstract: A pre-specified set of nine prominent U.S. equity return anomalies produce significant alphas in Canada, France, Germany, Japan, and the U.K. All of the anomalies are consistently significant across these five countries, whose developed stock markets afford the most extensive data. The anomalies remain significant even in a test that assumes their true alphas equal zero in the U.S. Consistent with the view that anomalies reflect mispricing, idiosyncratic volatility exhibits a strong negative relation to return among stocks that the anomalies collectively identify as overpriced, similar to results in the U.S.


Work-in-progress

Utilizing detailed account-level data from Ant Group, this project aims at understanding how to improve investors' trading habits.  Specifically, we focus on retail investors in mutual funds, a group known for often incurring losses due to premature selling.  Our inquiry centers on the impact of digital companion messages distributed through the Ant platform. These messages, which include market interpretations, fund strategy explanations, and reassuring content, aim to cultivate a long-term investment mindset among investors. We hypothesize that sustained exposure to these digital companion messages could alleviate investors' anxiety, thereby reducing their inclination to sell mutual funds prematurely. Analyzing transaction-level data, we consistently find that investors who receive companion messages exhibit a decreased tendency to redeem their funds early. To further establish causality, we design and execute an experiment which shuts down investors' exposure to digital companion messages. We obtain consistent evidence from the initial stage of the experiment, and we are in the process of executing a second-stage experiment to further identify the economic channel. 

In this project, we examine the impact of inflation expectation on corporate bond prices in the cross-section. We obtain robust results related to the pricing effect of inflation risk, and compare the pricing power of four different measures of inflation.