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John B. S. Haldane:

 

“Theories have four stages of acceptance:

i) this is worthless nonsense;

ii) this is an interesting, but perverse, point of view;

iii) this is true, but quite unimportant;

iv) I always said so.”

 

 

 

Area of concentration: Asset pricing, applied theoretical and empirical, in connection with macroeconomics, corporate finance, labor economics, computational economics, accounting, and meta-science

 

 

Overview

[See my Google Scholar page for a quick citation count] [see my SSRN page for early drafts of my work]

 

My interview on Behind the Markets on Wharton Business Radio, hosted by Jeremy Schwartz and Wesley Gray, October 13, 2017 | Retesting investment anomalies with Dr. Lu Zhang, by Jeremy Schwartz, wisdomtree.com | Factor investing conversation with Lu Zhang, my blog interview with Wesley Gray, CEO/CIO, Alpha Architect, LLC, October 26, 2017

 

Replicating anomalies (Hou, Xue, and Zhang 2017). Keynote at for the Autumn 2017 Inquire Europe Symposium on “Advances in factor investing” | Slides for CFA Society of Columbus September 2017 Luncheon | Second Prize, the 2017 Chicago Quantitative Alliance Academic Competition | A reality check on stock-market ‘anomalies’, by Wesley Gray, The Wall Street Journal, November 5, 2017, pdf | Kicking the tires of market anomalies, by James Mackintosh, The Wall Street Journal, Business & Finance B1-B2, May 12, 2017, pdf | When researchers and investors walk into a bar, the investors get hammered, by Jason Zweig, The Wall Street Journal, May 12, 2017, pdf | An algorithm, an ETF and an academic study walk into a bar, by James Mackintosh, The Wall Street Journal, May 11, 2017, pdf | Ivory tower wonks help traders make a quick buck, by Noah Smith, Bloomberg, May 11, 2017, pdf | Anomalies, pitches and promises, by Matt Levine, Bloomberg, May 9, 2017, pdf | A new paper just took a huge shot at some of the world’s hottest investments, by Eric Weiner, Bloomberg, May 8, 2017, pdf

 

The investment CAPM, the article prepared for keynote speech at the European Financial Management Symposium on “Finance and Real Economy,” 2017, published at European Financial Management

 

 

Dissertation

 

Essays on the cross-section of returns, 2002, The Wharton School, University of Pennsylvania

 

 

Working Papers

 

Goncalves, Andrei S., Chen Xue, and Lu Zhang, 2017, Does the investment model explain value and momentum simultaneously? Slides

Two innovations (exact aggregation and current assets as a production input) in the structural investment model go a long way in explaining value and momentum simultaneously.

 

Hou, Kewei, Haitao Mo, Chen Xue, and Lu Zhang, 2017, The economics of value investing. Slides

The investment CAPM provides an economic foundation for Graham and Dodd’s (1934) Security Analysis, without mispricing.

 

Petrosky-Nadeau, Nicolas, Lu Zhang, and Lars-Alexander Kuehn, 2017, Endogenous disasters. Internet appendix | Slides

Market economies are intrinsically unstable. 

 

Hou, Kewei, Chen Xue, and Lu Zhang, 2017, Replicating anomalies. Slides | Second Prize, the 2017 Chicago Quantitative Alliance Academic Competition | Slides for CFA Society of Columbus September 2017 Luncheon | Keynote at the Autumn 2017 Inquire Europe Symposium on “Advances in factor investing” | Slides for the 2017 Hedge Fund Research Symposium organized by UNC Institute for Private Capital | WSJ: A reality check on stock-market ‘anomalies’ | WSJ: An algorithm, an ETF and an academic study walk into a bar | WSJ: When researchers and investors walk into a bar, the investors get hammered | Bloomberg: A new paper just took a huge shot at some of the world’s hottest investments | Bloomberg: Anomalies, pitches and promises

Most anomalies fail to replicate.

 

Bai, Hang, Kewei Hou, Howard Kung, Erica X. N. Li, and Lu Zhang, 2016, The CAPM strikes back? An investment model with disasters. Slides

An investment model with rare disasters reproduces the failure of the CAPM in explaining the value premium in finite samples in which disasters are not materialized, as well as its relative success in samples in which disasters are materialized.

 

Petrosky-Nadeau, Nicolas, and Lu Zhang, 2013, Unemployment crises. Presentation at NBER SI 2014 Macro Perspectives workshop. Slides

A search and matching model with credible bargaining, when calibrated to the mean and volatility of unemployment in the postwar sample, can potentially explain the unemployment crisis in the Great Depression.

 

Hou, Kewei, Chen Xue, and Lu Zhang, 2014, A comparison of new factor models. NBER working paper 20682, permanent working paper. Second Prize, the 2015 Chicago Quantitative Alliance Academic Competition

The Fama-French five-factor model is largely a noisy version of the q-factor model.

 

Zhang, Lu, 2005, Anomalies, NBER working paper 11322, permanent working paper. Runner-up, Best Paper Award at the 2005 Utah Winter Finance Conference

An economic explanation for why investment and profitability play a fundamental role in the cross section of expected stock returns.

 

 

Publications

[All articles are the sole copyright of the respective publishers. Materials are provided for educational use only]

 

2017       Zhang, Lu, The investment CAPM, European Financial Management 23 (4), 545-603, lead article | Lecture notes

 

2017       Petrosky-Nadeau, Nicolas, and Lu Zhang, Solving the Diamond-Mortensen-Pissarides model accurately, Quantitative Economics 8 (2), 611-650.

 

2015       Hou, Kewei, Chen Xue, and Lu Zhang, Digesting anomalies: An investment approach, Review of Financial Studies 28 (3), 650-705. Editor’s Choice, lead article | Internet appendix | Lecture notes | Oxford University Press blog: A new benchmark for estimating expected stock returns | ETF.com blog: Passive investing’s foundations | Most cited RFS paper published in 2015

 

2014       Liu, Laura Xiaolei, and Lu Zhang, A neoclassical interpretation of momentum, Journal of Monetary Economics 67, 109-128. Lecture notes

 

2014       Tang, Yue, Jin (Ginger) Wu, and Lu Zhang, Do anomalies exist ex ante?, Review of Finance 18 (3), 843-875, lead article.

 

2013       Belo, Frederico, Chen Xue, and Lu Zhang, A supply approach to valuation, Review of Financial Studies 26 (12), 3029-3067. Internet appendix | Lecture notes

 

2013       Lin, Xiaoji, and Lu Zhang, The investment manifesto, Journal of Monetary Economics 60 (3), 351-366. Lecture notes

 

2011       Gulen, Huseyin, Yuhang Xing, and Lu Zhang, Value versus growth: Time-varying expected stock returns, Financial Management 40 (2), 381-407.

 

2011       Chen, Long, and Lu Zhang, Do time-varying risk premiums explain labor market performance?, Journal of Financial Economics 99 (2), 385-399.

 

2010      Li, Dongmei, and Lu Zhang, Does q-theory with investment frictions explain anomalies in the cross-section of returns?, Journal of Financial Economics 98 (2), 297-314. Lecture notes

 

2010      Wu, Jin (Ginger), Lu Zhang, and X. Frank Zhang, The q-theory approach to understanding the accrual anomaly, Journal of Accounting Research 48 (1), 177-223.

 

2009     Liu, Laura Xiaolei, Toni M. Whited, and Lu Zhang, Investment-based expected stock returns, Journal of Political Economy 117 (6), 1105-1139. Internet appendix | Gauss programs and data | Matlab programs and data | Lecture notes

 

2009      Li, Erica X. N., Dmitry Livdan, and Lu Zhang, Anomalies, Review of Financial Studies 22 (11), 4301-4334, lead article. Lecture notes

 

2009      Livdan, Dmitry, Horacio Sapriza, and Lu Zhang, Financially constrained stock returns, Journal of Finance 64 (4), 1827-1862. Lecture notes

 

2008      Liu, Laura Xiaolei, and Lu Zhang Momentum profits, factor pricing, and macroeconomic risk, Review of Financial Studies, 21 (6), 2417-2448.  

 

2008      Lyandres, Evgeny, Le Sun, and Lu Zhang, The new issues puzzle: Testing the investment-based explanation, Review of Financial Studies 21 (6), 2825-2855. Runner-up, Barclays Global Investors Award for the Best Conference Paper at the 2005 European Finance Association Annual Meetings.

 

2008      Liu, Naiping, and Lu Zhang, Is the value spread a useful predictor of returns?, Journal of Financial Markets 11 (3), 199-227.

 

2008      Campello, Murillo, Long Chen, and Lu Zhang, Expected returns, yield spreads, and asset pricing tests, Review of Financial Studies 21 (3), 1297-1338.

 

2008      Chen, Long, Ralitsa Petkova, and Lu Zhang, The expected value premium, Journal of Financial Economics 87 (2), 269-280.

 

2006      Gomes, Joao F., Amir Yaron, and Lu Zhang, Asset pricing implications of firms’ financing constraints, Review of Financial Studies 19 (4), 1321-1356.

 

2005      Petkova, Ralitsa, and Lu Zhang, Is value riskier than growth?, Journal of Financial Economics 78 (1), 187-202. Discussion in Bodie, Kane, and Marcus, 2009, Investments.

 

2005      Zhang, Lu, The value premium, Journal of Finance 60 (1), 67-103. First Prize, Smith-Breeden Award for 2005 | Matlab and Fortran 90 programs | Discussion in Bodie, Kane, and Marcus, 2009, Investments | One of the 25 most cited articles in Journal of Finance since 2004 | The 4th most highly cited article in the literature on anomalies and fundamental analysis since 2000 with the highest average number of citations per year according to Richardson, Tuna, and Wysocki (2010) | ETF.com blog: Understanding the value premium | Lecture notes

 

2004      Brandt, Michael W., Qi Zeng, and Lu Zhang, Equilibrium stock return dynamics under alternative rules of learning about hidden states, Journal of Economic Dynamics and Control 28 (10), 1925-1954, lead article.

 

2003      Gomes, Joao F., Amir Yaron, and Lu Zhang, Asset prices and business cycles with costly external finance, Review of Economic Dynamics 6 (4), 767-788.

 

2003      Gomes, Joao F., Leonid Kogan, and Lu Zhang, Equilibrium cross section of returns, Journal of Political Economy 111 (4), 693-732, lead article. Matlab programs | Erratum | Reprinted in “Stephen A. Ross, Mentor: Influence Through Generations,” ed. Mark Grinblatt, McGraw-Hill Irwin, 2008.

 

 

Other Publications

 

Zhang, Lu, 2014, Exploring asset pricing anomalies, NBER Reporter 1, 17-19.

 

Zhang, Lu, 2016, Factors war, Tsinghua Financial Review 37, 101-104 in Chinese; 资产定价中的因子大战,《清华金融评论》.