About me

Working papers

Intraday Momentum and Returns to Liquidity Providers

Job Market Paper

This paper documents a structural shift in U.S. equity intraday return dynamics. Before the SEC’s decimalization in 2001, five-minute returns displayed negative autocorrelation and reversal; afterward, they exhibited positive autocorrelation and momentum. Evidence from the 2016 Tick Size Pilot and the Russell 2000 reconstitution links this transition to smaller tick sizes and autocorrelated institutional demand. While such momentum typically implies losses for liquidity providers, both cross-sectional return patterns and time-series autocorrelations reveal a clear term structure: reversal and negative autocorrelation at sub-minute intervals transition to momentum and positive autocorrelation at longer horizons. Thus, trading at higher frequencies and exploiting make-take fees and bid-ask spreads can offset these losses, allowing profitability even when providing liquidity against momentum.

Extrapolative Expectations and Corporate Risk Management 

with Haibo Jiang, Nishad Kapadia, and Yuhang Xing

Reject & Resubmit, the Journal of Finance

At the end of the 1990s, about 80% of gold miners hedged their financial risks using derivatives. By 2010, this number was down to under 20%. We use this `great dehedging' episode to shine new light on the practice of risk management. We find evidence consistent with the hypothesis that managers extrapolate past gold returns to set hedge ratios -- miners hedge less when gold prices have risen in the recent past because they expect gold prices to continue to rise in the future. We find little evidence that the standard motivations for risk management---distress, investment, taxes, or financial constraints can explain the extent of dehedging we observe.

Intraday Liquidity Commonality

with Seyed Mohammad Kazempour and Yuhang Xing

We study liquidity commonality using high-frequency intraday data and document a sharp rise over the past two decades. This increase is driven mainly by a decline in idiosyncratic liquidity variation rather than stronger systematic components. Supply-side explanations receive limited support, as commonality falls during crises due to spikes in idiosyncratic variation. Demand-side factors are strongly associated with higher commonality, yet they cannot fully account for the magnitude of the increase. Our findings underscore the value of high-frequency analysis and reveal a puzzle that calls for new theoretical explanations of liquidity comovement in modern markets.

Expectations and Option Pricing

This paper examines whether and how stock return expectations affect option pricing. I construct expectations based on machine learning methods to incorporate a rich set of predictors. Options with extreme expectations are more expensive and overpriced, especially options with the lowest expectations. I further show that extreme expectations are associated with high option demand. This might indicate that option prices are affected by the demand related to expectations. Overall, this paper complements the intermediary option pricing by proposing stock return expectation as a potential driver of option demand, and documents the relationship between expectations and option expensiveness. 

Work-in-progress

A New Bound on Stock Expected Returns

with Fousseni Chabi-Yo and Xiaoxiao Tang