Recent Working Papers
Recent Working Papers
1. Artificial Intelligence and the Law of One Price: Evidence from the Chinese A-H Premium, with Zhi Da, Xinyi Peng, and Gaoping Zheng, 2025
Using the unique setting of Chinese firms with dual-class shares—A-shares traded in mainland China by local investors and H-shares traded in Hong Kong by foreign investors—we provide the first evidence that artificial intelligence (AI) helps to reduce information asymmetry and reinforce the law of one price. Following the introduction of Chinese AI tools accessible to local investors, the A-H share price premium for firms with substantial overseas operations declines relative to that of domestically-focused firms, particularly around earnings announcements. A closer analysis reveals that these AI tools facilitate the timely and efficient incorporation of negative information into prices at such announcements, thereby mitigating the post-earnings announcement drift.
2. Social Interaction and Cross-Domain Investor Bias Formation: Evidence from Lottery-Like Stock Trading, with Yuhao Xuan, Dongyan Ye, and Gaoping Zheng, 2025
Using account-level social and trading data, we document that after observing peers win randomized IPO allotments, connected investors shift their purchases toward lottery-like stocks. This finding reveals a cross-domain social transmission mechanism that stimulates the formation of behavioral biases, where investors mistakenly extrapolate peers’ IPO lottery wins to their own prospects in lottery-like stock trading through the representativeness heuristic. This effect is amplified when IPO wins are more salient and when affected investors trade more frequently or have recently experienced losses. Alternative mechanisms, including hot hand fallacy, social persuasion, and catching up with the Joneses, do not explain our results.
3. Meme stocks and individual investor trading: Evidence from Reddit outages, with Yuhao Xuan, Xinran Zhang, and Gaoping Zheng, 2023
During Reddit outages, the predictability of retail order imbalance on future returns for meme stocks (stocks discussed with extreme enthusiasm in Reddit’s subreddit Wallstreetbets) increases dramatically. This enhanced predictability is stronger for stocks with more discussions from fanatic investors and stocks endorsed by influencers prior to outage days, and when meme stocks are concurrently discussed on Seeking Alpha in the outage days. Conversely, the effect weakens when pre-outage discussions contain “Due Diligence” reports. Our results suggest that heated social media discussions result in retail investors making less informed trades. Our findings cannot be explained by attention-induced trading or short-term momentum.
4. Risky Tweets in Quiet Times: Social Media as an Amplifier of Bank Fragility, with Yong Kyu Gam and Chunbo Liu, 2023
Does social media amplify bank fragility absent systemic crises (e.g., the SVB crisis)? Using a sample of U.S. commercial banks from 2009 to 2022, we show that heightened Twitter attention increases the sensitivity of non-core deposits—but not core deposits—to bank performance deterioration. This effect intensifies for banks with greater liquidity mismatch and when Twitter discussions are more influential. Neither enhanced bank transparency nor negative sentiment in social media discussions explains these results. Our findings indicate that social media is not merely an information transmitter; it heightens depositors’ awareness of peer attention to banks, amplifying deposit outflow sensitivity to weak fundamentals even during calm periods.
2. Internet searching and stock price crash risk: Evidence from a quasi-natural experiment, with Yuhao Xuan and Gaoping Zheng, 2021, Journal of Financial Economics
In 2010, Google unexpectedly withdrew its searching business from China, reducing investors’ ability to find information online. The stock price crash risk for firms searched for more via Google before its withdrawal subsequently increases by 19%, suggesting that Internet searching facilitates investors’ information processing.
1. The sensitivity of corporate cash holdings to corporate governance, with Qi Chen, Xiao Chen, Katherine Schipper, and Jian Xue, 2012, Review of Financial Studies
The average cash holdings of Chinese-listed firms decreased significantly after the split share structure reform in China, which specified a process that allowed previously nontradable shares held by controlling shareholders to be freely tradable on the exchanges. Our results are consistent with the premise that the reform removed a significant market friction, which led to better incentive alignment between controlling shareholders and minority shareholders and relaxed financial constraints.
4. Crisis rescue via direct purchase: Evidence from China, with Lu Li, Chunbo Liu, Xiaoyan Zhang, and Gaoping Zheng, 2024, Journal of Banking and Finance
During the 2015 stock market crisis, the Chinese government used hundreds of billions of dollars to purchase shares directly in the secondary market. We find that compared with non-rescued firms, rescued firms have significantly lower liquidity after being rescued. Policy uncertainty regarding subsequent interventions better explains the reduction in liquidity than the liquidity dry-up and bad firm signaling hypotheses. Inconsistent with the potential moral hazards associated with government bailouts, the investment policies of rescued firms become more conservative after being rescued. Our evidence warns of the unintended consequences of direct purchase rescue programs.
3. Subsidiary Governance and Corporate Tax Planning: The Effect of Parent-Subsidiary Common Directors and Officers, with Xin Wang, Liandong Zhang, and Gaoping Zheng, 2022, Journal of Management Accounting Research
Top executives of the parent company often take positions as the directors and officers (D&Os) of subsidiaries. These parent-subsidiary common D&Os have better access to subsidiary information and can exert more influence over subsidiary operations. Therefore they can better identify tax-planning opportunities and coordinate tax arrangements. Using the mandatory disclosure of top executives' subsidiary positions for Chinese listed firms, we find that effective income tax rate is lower for firms with common D&Os. The tax-saving effect is stronger for firms with more intangible assets and with related-party transactions involving subsidiaries. The effect is also stronger when common D&Os have positions in economically significant subsidiaries and the subsidiaries entitled to preferential tax treatment and when common D&Os are involved in daily subsidiary operations. To our knowledge, this paper is the first to study the role of subsidiary governance in general and common D&Os in particular in corporate tax-planning.
2. Monetary stimulation, bank relationship and innovation: Evidence from China, with Gaoping Zheng and Shuxun Wang, 2018, Journal of Banking and Finance
Using China’s four trillion yuan stimulus package of 2008 as an exogenous shock, we find that monetary stimulation could benefit the real economy to some extent. Specifically, compared with propensity-score-matched control firms, firms more likely affected by the stimulus plan (e.g., bank connected firms) are granted with 18% to 24% more patents afterwards.
1. Anticorruption regulation and firm value: Evidence from a shock of mandated resignation of directors in China, 2018, Journal of Banking and Finance
China’s broad anti-corruption campaign includes a regulation that requires bureaucrats to resign from director positions in listed companies. Using this particular event to test the effect of the anticorruption regulation, we find that this regulation costs firms with banned directors on average 4%.