SME and SFI Professors Won Outstanding Finance Paper Awards by Financial Forum
The Financial Forum of Shenzhen Special Economic Zone recently announced the awards of outstanding finance paper 2020. The co-authored paper of Prof. Xiong Wei and Prof. Liu Hongqi won the first prize. The papers of Prof. Shen Rui, Prof. Zhang Jinfan and their co-authors won the second and third prize respectively. A total of 147 papers were received upon the selection stage. All the papers received were processed on anonymization by the secretariat of the Forum, it organized senior experts in the industry to review and finally selected 7 first prizes, 14 second prizes, and 29 third prizes, as well as several excellent awards.
Resolving the Excessive Trading Puzzle: An Integrated Approach Based on Surveys and Transactions
Authors: Hongqi Liu, Cameron Peng, Wei A. Xiong, and Wei Xiong
Prof. Xiong Wei
Academic Dean of School of Management and Economics
Research Field: Capital Market Friction, Behavioral Finance
Assistant Prof. Liu Hongqi
Research Field: Asset Pricing, Investor Attention, Behavioral Finance
The behavioral finance literature has provided over a dozen explanations for the so- called excessive trading puzzle – retail investors trade a lot even though more trading hurts their performance. It is difficult to use transaction data to differentiate these explanations as they share similar predictions by design. To confront this challenge, we design and administer a nation-wide survey among retail investors to elicit their responses to an exhaustive list of trading motives. By merging survey responses with account-level transaction data, we validate survey responses with actual trading behaviors and compare the power of survey-based and transaction-based measures of trading motives. A horse race among prevalent trading motives suggests that overconfidence in having information advantage and gambling preference quantitatively dominate other explanations for excessive trading. Moreover, other popular arguments such as neglect of trading cost do not contribute to excessive trading.
Measuring Corporate Culture Using Machine Learning
Authors: Kai Li, Feng Mai, Rui Shen, Xinyan Yan
Associate Prof. Shen Rui
Research Field: Capital Market, Corporate Finance, Financial Analyst, Information Disclosure
Using one of the latest machine learning techniques—the word embedding model (Mikolov et al. 2013)—and 209,480 earnings call transcripts, we obtain five corporate cultural values: innovation, integrity, quality, respect, and teamwork (Guiso, Sapienza, and Zingales 2015) for 62,664 firm-year observations over the period 2001–2018. We conduct a large number of tests to validate our measure. We show that corporate culture correlates with business outcomes, including operational efficiency, risk-taking, earnings management, executive compensation design, firm value, and deal making. We also present suggestive evidence that corporate culture is shaped by major corporate events such as mergers and acquisitions.
Price Discovery in China’s Interest Rate Markets: Evidence from the Treasury Spot, Futures, and Interest Rate Swaps Markets
Authors: Zhang Jinfan, Tang Yignwei, Gang Jianhua, Fan Linli
Associate Prof. Zhang Jinfan
Co-director of Center for Macro-Financial Stability and Innovation
Research Field: Asset Pricing, Macro-economy, Financial Technology
The research uses the information share model and vector autoregressive model (VAR-MGARCH) to examine the information flow among the Treasury spot market, the Treasury futures market, and the interest rate swaps market. The information share model shows that, on the whole, interest rate swaps have an information advantage over the Treasury futures and Treasury spots, while the Treasury futures have an information advantage over treasury spots. In addition, the price discovery ability of the Treasury futures is increasing over time compared to the other two markets. Granger causality test results show that interest rate swap price directs both the futures price and the spot price of Treasury bonds in one direction, the futures price also directs the spot price in one direction. All the results unanimously show that two interest rate derivatives, interest rate swaps and treasury futures, have played an important role in guiding price discovery in China's interest rate market.