Job Market Candidate
Department of Economics
W. P. Carey School of Business
Arizona Strate University
Cell Phone: 480-335-7768
Applied Microeconomic Theory, Corporate Finance and Governance, Financial Markets
A Unique “T+1 Trading Rule” in China: Theory and Evidence , 2012, with Ming Guo and Zhiyong Tu, Journal of Banking and Finance 36, 575–583.
ABSTRACT: Unique to the world, China adopts a “T + 1 trading rule”, which prevents investors from selling stocks bought on the same day. We develop a dynamic price manipulation model to study the effects of the “T + 1 trading rule”. Compared to the “T + 0 trading rule”, which allows investors to buy and sell the same stocks during the same day, we show that the “T + 1 trading rule” reduces the total trading volume and price volatility, and improves the trend chasers’ welfare when trend-chasing is strong. An empirical test using data on China’s B-share stock market supports the model’s theoretical predictions.
Information Friction, Monitoring Cost and the Market for CEOs, 2015, Job Market Paper.
ABSTRACT: This paper discusses the matching between CEOs of different talent and firms of different size, by considering boards’ costly monitoring of CEOs who have private information about firm output. By incorporating a costly state verification model into a matching model, we have a number of novel findings. First, positive assortative matching (PAM) breaks down as larger firms match with less talented CEOs when monitoring is sufficiently costly despite of complementarity in firms’ production technology. More importantly, PAM can be the equilibrium sorting pattern for large firms and high talent CEOs even it fails for small firms and low talent CEOs, which implies that empirical applications relying on PAM are more robust by using samples of large firms. Second, under positive assortative matching, CEO compensation can be decomposed into frictionless competitive market pay and information rent. More talented CEOs extract more rent, which makes their wage even higher. Third, firm-level corporate governance depends on aggregate market characteristics such as the scarcity and allocation of CEO talent. Weak corporate governance can be optimal when CEO talent is sufficiently scarce. Our analysis yields a number of empirical predictions on equilibrium sorting pattern, CEO compensation, and corporate governance.
Directors’ Reputation Incentives and CEO Labor Market, 2012, Accepted at 2013 Middle West Finance Association Annual Meeting.
ABSTRACT:This paper examines how directors’ reputation incentives affect managerial compensation and firm profits in a two-sided matching market. We find that the allocation of managers is distorted from positive assortative matching as smaller firms match with more talented managers. In equilibrium, a firm earns lower profit, matches with a more talented manager if the director has higher reputational concerns, the firm has weaker governance, the director’s ability is more uncertain or the product market is more volatile. When compared with models of positive assortative matching, each manager is overpaid and each firm earns less profit even there is only one weakly governed firm. This is caused by the externality of weak corporate governance which induces every firm to overpay its manager when competing for scarce managerial talent.
Positive Feedback Trading, Short Sale Constraints, and IPO Underpricing: Theory and Empirical Evidence, 2014, with Ming Guo, coming soon.
ABSTRACT: This paper develops a dynamic trading model to explore the impact of positive feed- back trading on IPO underpricing in the presence of short-sale constraints. When positive feedback trading is strong, the speculator adopts a three-stage strategy: bids in the offering lottery to obtain cheap stakes; purchases stocks in the aftermarket to drive up the price; sells his stakes obtained from the offering when positive feedback traders are induced to buy, leading to a higher price. This model shows the aftermarket price can be overpriced even though the IPO price is at the fair value. The predictions of the model are supported by a sample of Chinese IPOs.
The Bright Side of Busy Directors
Board Size and Firm Performance: From the Perspective of Board Voting, with Zhenhua Wu
Job duties: Hold office hours, design exam questions, hold review sessions and labs, etc.