WORKING PAPERS
A Natural Experiment Test for Asset Pricing Models (with Tongbin Zhang)
The high and volatile AH premium, which is the price differences of dual-listed AH shares, In the connected Chinese stock markets provides a natural experiment to test asset pricing models. We show that various present-value asset pricing models, in which stock prices are determined only by fundamentals, are rejected because of their difficulties in explaining AH premium. We finnd that an internal rationality learning model can rationalize the AH premium and show the importance of subjective stock price expectations in equity pricing. Convergence traders are highly likely to suffer a big loss in this situation.
New Tests of Expectation Formation with Applications to Asset Pricing Models (with Pei Kuang and Tongbin Zhang)
The paper develops new tests of expectation formation which are generally applicable in financial and macroeconomic models. The tests utilize cointegration restrictions among forecasts of model variables. Survey data suggests forecasts of stock prices are not cointegrated with forecasts of consumption and rejects this aspect of the formation of stock price expectations in a wide range of asset pricing models, including rational expectations and various learning or sentiment-based models. Potential resolutions are discussed for reconciling equity pricing models with the new survey evidence.
The New Classical Optimal Monetary Policy Revisited
SELECTED WORKS IN PROGRESS
Testing Expectation Formation in Stochastic Growth Models (with Pei Kuang, Tongbin Zhang)
The Paradox of Price Flexibility (with Shengliang Ou, Donghai Zhang)
Optimal Monetary Instruments for an Uncertain World (with Isaac Baley and Donghai Zhang)
