Published and Accepted Papers
Intervention with Screening in Panic-Based Runs (with Lin Shen) Forthcoming at Journal of Finance
Size Discount and Size Penalty: Trading Costs in Bond Markets (with Gabor Pinter and Chaojun Wang) conditionally accepted at Review of Financial Studies
Working Papers
Less is More (with Bart Zhou Yueshen)
Presentations: Stern Microstructure Conference 2023, SFS Cavalcade 2023, WFA 2023, EFA 2023, SENA Workshop on Financial Networks 2023, INSEAD Finance Symposium 2023, French AMF’s Scientific Advisory Board Meeting in June 2023, SAFE Conference in Market Microstructure 2023, Stockholm Business School.
Presentations: Stern Microstructure Conference 2023, SFS Cavalcade 2023, WFA 2023, EFA 2023, SENA Workshop on Financial Networks 2023, INSEAD Finance Symposium 2023, French AMF’s Scientific Advisory Board Meeting in June 2023, SAFE Conference in Market Microstructure 2023, Stockholm Business School.
Abstract: We show in a model of over-the-counter trading that customers in equilibrium may choose to contact very few dealers to incentivize maximum liquidity provision—“less is more.” This happens when dealers’ liquidity supply is sufficiently elastic to competition. A social planner would mandate even fewer contacts than the market outcome, because customers induce excessive dealer competition. The model generates predictions that echo empirical evidence, yields implications for regulation and design of electronic platforms, and speaks to customers’ order splitting behavior and their trading costs.
Information Traps in Over-the-Counter Markets
Presentations: WFA 2019, SFS Cavalcade 2019, EFA 2020, FTG European Summer Meeting 2019, FTG Summer School 2019, SAET Annual Meeting 2023, Wharton, Penn (econ), INSEAD, Penn State (econ), Federal Reserve Bank of Philadelphia, McGill, Tsinghua University (PBCSF), Peking University (HSBC), SJTU (Antai).
Presentations: WFA 2019, SFS Cavalcade 2019, EFA 2020, FTG European Summer Meeting 2019, FTG Summer School 2019, SAET Annual Meeting 2023, Wharton, Penn (econ), INSEAD, Penn State (econ), Federal Reserve Bank of Philadelphia, McGill, Tsinghua University (PBCSF), Peking University (HSBC), SJTU (Antai).
Abstract: I analyze the interaction between information acquisition and market liquidity in over-the-counter markets with adverse selection. Buyers acquire information to avoid buying lemons when they expect low liquidity in the future. However, information acquisition generates a cream-skimming effect on the pool of assets and harms future liquidity. A liquid market can go through a self-fulfilling market freeze when buyers start to acquire information. More importantly, if information acquisition continues for an extended period, the market gets stuck in an information trap with low liquidity. This prediction helps explain the dynamics of liquidity in the US non-agency residential mortgage-backed security market.
Information Chasing versus Adverse Selection (with Gabor Pinter and Chaojun Wang)
Presentations: SFS Cavalcade 2021, FIRS 2021, CICF 2021, EFA 2021, AFA 2022, Australasian Finance & Banking Conference 2020, World Symposium on Investment Research 2021, SAFE Market Microstructure Conference 2021, SENA Workshop on Financial Networks 2022, Market Microstructure Exchange, Asia-Pacific Market Structure Webinar, Finance Theory Webinar, Junior European Finance Seminar, University of Washington, Toulouse School of Economics, Wharton, INSEAD, ESCP, University of Bonn.
Presentations: SFS Cavalcade 2021, FIRS 2021, CICF 2021, EFA 2021, AFA 2022, Australasian Finance & Banking Conference 2020, World Symposium on Investment Research 2021, SAFE Market Microstructure Conference 2021, SENA Workshop on Financial Networks 2022, Market Microstructure Exchange, Asia-Pacific Market Structure Webinar, Finance Theory Webinar, Junior European Finance Seminar, University of Washington, Toulouse School of Economics, Wharton, INSEAD, ESCP, University of Bonn.
Abstract: Contrary to the prediction of the classic adverse selection theory, a more informed trader receives better pricing relative to a less informed trader in over-the-counter financial markets. Dealers aggressively chase informed orders to better position their future quotes and avoid winner's curse in subsequent trades. On a multi-dealer platform, dealers' incentive of information chasing exactly offsets their fear of adverse selection. In a more general setting of OTC trading, information chasing can dominate adverse selection when dealers face differentially informed speculators, while adverse selection always dominates when dealers face differentially informed trades from a given speculator. These two predictions---which contrast sharply with each other---both find strong empirical support in the UK government bond market.