Publications

  1. Why Does Spousal Education Matter for Earnings? Assortative Mating and Cross-Productivity, with Hongbin Li, Pak Wai Liu, and Junsen Zhang, Journal of Labor Economics, 2009, 27(4): 633-652.
  2. Bayesian Persuasion in Coordination Games, with Itay Goldstein, American Economic Review, Papers and Proceedings, 2016, 106(5): 592-96.
  3. The Real Costs of Financial Efficiency When Some Information is Soft, with Alex Edmans and Mirko Heinle, Review of Finance, 2016, 20(6): 2151-2182.                                                                                                                                        * Coverage: Knowledge@Wharton, New York Times, Harvard Law School Corporate Governance Forum, VoxEU
  4. Defending Against Speculative Attacks: The Policy Maker's Reputation, Journal of Economic Theory, 2017, 107: 1-34.
  5. Coordination and Social Learning, Economic Theory, 2017, 65(1): 155-177.
  6. A Theory of Multiperiod Debt Structure, with Martin Oehmke and Hongda Zhong, Review of Financial Studies, 2019, 32(11): 4447-4500.
  7. Star-rating Effects and the Incentives of Mutual Funds, with Fei Li and Xi Weng, Journal of Finance, 2020, 75(3): 1715-1765.
  8. Credit Rating Inflation and Firms' Investments, with Itay Goldstein, Journal of Finance, 2020, 75(6): 2929-2972.
  9. Disagreement about Public Information Quality and Informational Price Efficiency, with Radhika Lunawat and Qiguang Wang, forthcoming at Journal of Financial Economics.                                                           
Working Papers​
  1. Index Investing and Asset Pricing under Information Asymmetry and Ambiguity Aversion, with David Hirshleifer and Siew Hong Teoh, 2023.​ (R&R)                                                                                                                        * In a setting with information asymmetry and a tradable value-weighted market index, ambiguity averse investors hold undiversified portfolios, and assets have non-zero alphas. But when a passive fund offers the risk-adjusted market  portfolio (RAMP) whose weights depend on information precisions as well as market values, all investors engage in index investing. Asset alphas are zero with RAMP as pricing portfolio.​
  2. Credit Rating Scale and Startup Loans, with Fei Li and Haibo Xu, 2023.                                                                                    * Compared with continuous rating scale, discrete credit rating scale can improve entrepreneur borrowing capacity, which is a significant real effect of rating discreteness even before ratings are assigned. This lends support to the practice of employing finite rating categories. Solving a joint design problem (information design followed by a contract design), we show a positive-or-negative rating scale maximizes entrepreneur borrowing capacity. A positive-or-negative rating scale whose associated borrowing capacity equal to borrowing need maximizes the entrepreneur payoff and social welfare.
  3. Informed Trading and Product Market Competition, with Xiaoqi Xu, 2023.                                                                             * Secondary financial market and product market are interacting with each other. In an entry game, the entrant learns about the product demand by observing trading in the incumbent's stock market before entry decision. Without an initial stake in the incumbent, an informed investor always trades on her private information. With an initial stake, informed investor always sells when the product demand is low. When the product demand is high, the probability of informed investor buying decreases from one to zero (continuously) but then jumps back to one as the entry cost increases. Product market competition is enhanced (reduced) by the initial stake if the entry cost is relatively low (high). Putting sands in wheel of the financial market (a tiny trading cost) can promote product market competition. 
  4. Open Banking under Maturity Transformation, with Itay Goldstein and Liyan Yang, 2023.                                                  * Open banking policy allows borrowers to freely share their data with any financial institutions and so increases lending market competition. However, under maturity transformation, there is a feedback loop between financial institutions' investments and their financial costs. Such a feedback loop exacerbates winner's curse, resulting in informational monopoly under closed banking and positive bank nonparticipation probability under open banking. Open banking may lead to inefficient resource allocation, though it promotes borrower welfare.
  5. Alternative Trading System Effects on Exchange Market Efficiency and Real Efficiency, with Xiaoqi Xu, 2021.                  * Alternative trading systems (ATS) may lead to asymmetric investor trading venue choices, asymmetric firm choices, and asymmetric limits to arbitrage. In some cases, ATSs improve both exchange market efficiency and real efficiency, and in other cases, ATSs harm exchange market efficiency but surprisingly promote real efficiency.​​
  6. Learning about Managerial Entrenchment in Dynamic Hostile Takeovers, with Zehao Hu, 2020.                                        * A long-lived acquirer learns about how entrenched a long-lived target manager is. When such a learning is slow, the acquirer never bids in equilibrium. In this case, hostile takeovers are ineffective in disciplining entrenched managers.
  7.  Target's Learning in M&A Negotiations, with Qiguang Wang, 2019.                                                                                     * Runups increase bidder takeover costs through target's learning.
  8.  How Does Stock Market Affect Corporate Investment? with Itay Goldstein and Qiguang Wang, 2019.                    
  9. ​ Information Asymmetry, Market Participation, and Asset Prices, with David Hirshleifer and Siew Hong Teoh, 2016.         * Investors will participate markets of all stocks, even if they do not have any information about some or all                     stocks. A new separation theorem holds, and stocks' risk premiums obey the CAPM.​
  10.  Bargaining while Learning about New Arrivals, with Fei Li, 2013.                                                                                        * In a Coase bargaining with learning about new short-lived buyers, price fluctuates.
  11.  Transfers from Adult Children to Elderly Parents: For Love or for Prize? with Jere Behrman, Hongbin Li, and Junsen Zhang, 2009.