Research

Working papers

• Risk Seeking (with Jun Liu and Kai Li)
  • This paper studies risk-seeking properties embedded in loss aversion preferences. We demonstrate that the agent’s choice is strikingly different when she is “under the water” with low initial wealth or “above the water.” In the underwater scenario, the agent adopts substantial long or short positions and shuns positions involving moderate levels of risk. The agent can swing between sizable long and short positions with minor changes in market conditions. The agent may short an asset with a positive risk premium. These behaviors are consistent with findings in experimental and market settings but cannot be explained by expected utility theory. In the above-water scenario, the optimal choice is similar to but more aggressive than that under HARA preferences. Our results isolate risk seeking in loss aversion preferences.

Research in Progress

• Arbitrage-Free Factor Analysis: An Application to Affine Term-Structure Models (with Jun Pan and Jun Liu)
  • Use Sequential Regression to extract innovations
  • Temp_Slides
• Relationship between Corporate Yield Spread and Treasury Yield (with Jun Liu and Jun Pan).
  • Investigating the relationship between short rate and yield spread. Q: Can yield spread increase with short rate?
  • Empirical result says yes. How can we explain it?
  • Temp_Slides