# Publications

Working Paper
Yixin Chen, Randolph Cohen, and Zixuan (Kevin) Wang. Working Paper. “Famous Firms, Earnings Clusters, and the Stock Market”.Abstract

We show that much of the market premium for the year occurs on a handful of days,
identifiable well in advance, on which several of the market’s most famous, high-media-attention firms simultaneously announce earnings after the market close. Puzzlingly, the
market surges occur during the 24 hours prior to the earnings announcements, from close
to close. Since there is no overlap between the price increase period and the information
revelation, the high returns do not appear to represent a risk premium, and our tests seem
to rule out information-leakage explanations. Deepening the puzzle, the market delivers
high returns only prior to post-close earnings-announcement clusters, not in advance of
clusters that occur in the pre-open period. In addition to being economically large and
easily tradeable, the effect is statistically significant, and the results hold in all subperiods
in our sample. We argue that the best explanation for our findings is that of Miller (1977)
as extended by Hong and Stein (2007): when over a short “attention” period difference of
opinion combines with short-sale constraints, prices will rise as optimists buy while pessimists cannot sell.

Zixuan (Kevin) Wang and Luis Viceira. Working Paper. “Global Portfolio Diversification for Long-Horizon Investors”.Abstract
This paper conducts a theoretical and empirical investigation of the risk of globally diversified portfolios of stocks and bonds and of optimal intertemporal global portfolio choice for long horizon investors in the presence of permanent cash flow shocks and transitory discount rate shocks to asset values. An increase in the cross-country correlations of cash flow shocks raises the risk of a globally diversified portfolio at all horizons. By contrast, an increase in the cross-country correlations of discount rate shocks has a much more muted effect on portfolio risk at long horizons, suggesting that the benefits of global portfolio diversification to long-term investors do not recede when the source of increased global return correlations is correlated discount rates. Empirically, we document a secular increase in the cross-country correlations of both stock returns and government bond returns since the late 1990's. We identify increased correlations of discount rate shocks resulting from financial globalization as the main driver of the upward shift in stock return correlations. We also identify increased correlations of inflation shocks as an equally important source of the upward shift in bond correlations. By contrast, we don't find evidence of a secular shift in the cross-country correlations of stock market volatility shocks, which have remained fairly low through time except during the financial crisis of 2009.
Revise and Resubmit at the Journal of Finance
Alexandre Belloni, Mingli Chen, and Oscar Madrid Padilla. Working Paper. “High Dimensional Latent Panel Quantile Regression with an Application to Asset Pricing”.Abstract

We propose a generalization of the linear panel quantile regression model to accommodate both sparse and dense parts: sparse means while the number of covariates available is large, potentially only a much smaller number of them have a nonzero impact on each conditional quantile of the response variable; while the dense part is represented by a low-rank matrix that can be approximated by latent factors and their loadings. Such a structure poses problems for traditional sparse estimators, such as the L1-penalised Quantile Regression, and for traditional latent factor estimator, such as PCA. We propose a new estimation procedure, based on the ADMM algorithm, that consists of combining the quantile loss function with L1 and nuclear norm regularization.
We show, under general conditions, that our estimator can consistently estimate both the nonzero coefficients of the covariates and the latent low-rank matrix.

Our proposed model has a Characteristics + Latent Factors" Asset Pricing Model interpretation: we apply our model and estimator with a large-dimensional panel of financial data and find that (i) characteristics have sparser predictive power once latent factors were controlled (ii) the factors and coefficients at upper and lower quantiles are different from the median.

Zixuan (Kevin) Wang and Ali Ozdagli. Working Paper. “Interest Rates and Insurance Company Investment Behavior”.Abstract
Life insurance companies, the largest institutional holders of corporate bonds, tilt their portfolios towards higher-yield bonds when interest rates decline. This tilt seems to be primarily driven by an increase in duration rather than credit risk and insurers do not seem to increase the credit risk of their bonds as interest rates decline. Moreover, the duration gap between their assets and liabilities deviates from zero for extended periods of time both in negative and positive directions. These patterns cannot be explained by incentives to reach for yield. We propose a new model of duration-matching under adjustment costs that conforms with these patterns and test other implications of this model.
In Preparation
Zixuan (Kevin) Wang. In Preparation. “Corporate Bond Liquidity and Dealer Inventory Cost”.