I am an economist and an assistant professor of finance at
The Chinese University of Hong Kong, Shenzhen.
My primary fields of interests: corporate finance, banking, and macro-finance.
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Published and Forthcoming Papers
Quantifying Reduced-Form Evidence on Collateral Constraints
with Sylvain Catherine, Thomas Chaney, David Sraer, and David Thesmar
Journal of Finance, 2022
While a mature literature shows that credit constraints causally affect firm-level investment, this literature provides little guidance to quantify the economic effects implied by these findings. Our paper attempts to fill this gap in two ways. First, we use a structural model of firm dynamics with collateral constraints, and estimate the model to match the firm-level sensitivity of investment to collateral values. We estimate that firms can only pledge about 19% of their collateral value. Second, we embed this model in a general equilibrium framework and estimate that, relative to first-best, collateral constraints are responsible for 11% output losses.
The Risk of Implicit Guarantees: Evidence from Shadow Banks in China
with Xiang Shao and Ji Huang
Review of Finance, forthcoming
We study banks' implicit guarantees to their shadow banking business. Using product-level data on wealth management products, the most prominent shadow banking products in China, we find that banks with higher interbank borrowing rates extend stronger guarantees to build their reputation and reduce future rollover costs.
This evidence suggests that perceived riskier banks expose themselves more to losses originated from shadow banking activities through their strategic provision of guarantees. Our finding also proposes a forward-looking and bank-specific approach, based on transparent and timely bank risk measures, to assess bank step-in risk from supporting off-balance-sheet entities.
Asset-side Bank Runs and Liquidity Rationing: A Vicious Cycle [Updated Nov. 2021]
Selected presentations: AFA(2018)
This paper studies financial vulnerability in a dynamic banking model with credit line runs on the asset side of a bank's balance sheet. I show that a strategic complementarity between bankers and borrowers arises from the contingency in credit lines and costly intermediation. Panic drawdowns by credit line borrowers and liquidity rationing by bankers reinforce each other and lead to a vicious cycle.
Using data from U.S. banks, I estimate an infinite-horizon model in which banker-borrower strategic complementarity amplifies shocks on intermediation costs. The amplification channel accounts for one-third of the overall credit contraction during the 2008-09 crisis.
Security-bid Auctions with Information Acquisition [May 2021]
with Yunan Li
Selected presentations: Royal Economic Society(2021), SWFA(2021), Econometric Society European Meeting(2021), Econometric Society China Meeting(2021)
We study security-bid auctions in which bidders compete for an asset by bidding with securities whose payments are contingent on the asset's realized value and can covertly acquire information at some cost before participating in an auction. We first consider auctions with ordered securities in which the seller restricts the security design to an ordered set and uses a first- or second-price auction. We show that steeper securities give agents lower marginal returns to information and may yield lower revenues. We then study linear mechanisms in which payments linearly depend on the asset's realized value. We show that the revenue-maximizing linear mechanism assigns the asset efficiently. The winner pays in cash if their expected values are above a threshold and pays in stock if their expected values are below the threshold. The threshold decreases as the marginal cost of acquiring additional information increases. This result implies that stock payments are associated with lower merge synergies and lower information acquisition costs. We empirically test the implications and find consistent results.
Dynamic Optimal Taxation with Endogenous Skill Premia
with Jason Ravit and Michael Sockin
Selected presentations: Econometric Society North America Meeting(2017)
We embed imperfect substitutability across skill levels into a dynamic Mirrlees model and uncover a novel intertemporal wage compression channel in optimal labor taxation that can rationalize redistributive programs such as the Earned Income Tax Credit.
Haircuts and Credit Risk over the Cycle
Selected presentations: Econometric Society World Congress(2015)
This paper develops a dynamic general equilibrium model with heterogeneous
beliefs and collateral constraints. The endogenously determined haircuts are countercyclical and
thus lead to a downward margin spiral that exacerbates financial instability.
School of Management and Economics, 2001 Longxiang Road
Longgang District, Shenzhen, 518172, China