W. Edwards Deming (1900-1993):
“In God we trust; all others bring data.”
Area of concentration: Asset pricing, applied theoretical and empirical, in connection with macroeconomics, corporate finance, labor economics, computational economics, capital markets research in accounting, microeconometrics, cliometrics, and meta-science
Factor investing insights you won’t hear from Fama and French, my blog interview with Wesley Gray, CEO/CIO, Alpha Architect, LLC, July 25, 2018, on two recent papers, “q^5” and “Which factors?”
My unique, big-picture perspective of asset pricing, which differs drastically from both the consumption CAPM and behavioral finance, is elaborated in my article titled “The investment CAPM,” published in 2017 at European Financial Management, see also my keynote at the European Financial Management Symposium on “Finance and Real Economy,” April 2017, Xiamen, China, and my keynote lecture on “The investment CAPM: An update” at “Merton H. Miller” EFM 2018 Doctoral Seminar, June 2018, Milan, Italy
Replicating anomalies (Hou, Xue, and Zhang 2018). Internet Appendix | Slides and presentation video at NBER Long-term Asset Management Conference, May 2018 | Keynote at the Autumn 2017 Inquire Europe Symposium on “Advances in Factor Investing,” October 2017, Montreux, Switzerland | Slides for CFA Society of Columbus Luncheon, September 2017 | 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 | My interview on Behind the Markets on Wharton Business Radio, hosted by Jeremy Schwartz and Wesley Gray, October 13, 2017 | Factor Investing Conversation with Lu Zhang, my blog interview with Wesley Gray, CEO/CIO, Alpha Architect, LLC, October 26, 2017
Essays on the cross-section of returns, 2002, The Wharton School, University of Pennsylvania
The q^5-model, which augments the q-factor model with an expected growth factor, outperforms other recently proposed factor models such as the Fama-French 6-factor model in explaining a large set of anomalies.
Hou, Kewei, Haitao Mo, Chen Xue, and Lu Zhang, 2018, Which factors? Formerly “A comparison of new factor models” and “Motivating factors,” Second Prize, the 2015 Chicago Quantitative Alliance Academic Competition
Many recently proposed, seemingly different factor models are closely related, on both empirical and conceptual grounds.
Goncalves, Andrei S., Chen Xue, and Lu Zhang, 2017, Aggregation, capital heterogeneity, and the investment CAPM. Slides
Two innovations (aggregation and working capital as a production input) in the investment CAPM go a long way in explaining value and momentum simultaneously in structural estimation.
Hou, Kewei, Chen Xue, and Lu Zhang, 2018, Replicating anomalies. Internet Appendix | Slides | Second Prize, the 2017 Chicago Quantitative Alliance Academic Competition | Slides and presentation video at NBER Long-term Asset Management Conference, May 2018 | 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 | Slides for CFA Society of Columbus September 2017 Luncheon | 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.
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.
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.
[All articles are the sole copyright of the respective publishers. Materials are provided for educational use only]
Bai, Hang, Kewei Hou, Howard Kung, Erica X. N. Li, and Lu Zhang, The CAPM strikes back? An equilibrium model with disasters, forthcoming, Journal of Financial Economics. Lecture notes
Petrosky-Nadeau, Nicolas, and Lu Zhang, Solving the Diamond-Mortensen-Pissarides model accurately, Quantitative Economics 8 (2), 611-650.
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
Tang, Yue, Jin (Ginger) Wu, and Lu Zhang, Do anomalies exist ex ante?, Review of Finance 18 (3), 843-875, lead article.
Gulen, Huseyin, Yuhang Xing, and Lu Zhang, Value versus growth: Time-varying expected stock returns, Financial Management 40 (2), 381-407.
Chen, Long, and Lu Zhang, Do time-varying risk premiums explain labor market performance?, Journal of Financial Economics 99 (2), 385-399.
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
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.
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
Liu, Laura Xiaolei, and Lu Zhang, Momentum profits, factor pricing, and macroeconomic risk, Review of Financial Studies, 21 (6), 2417-2448.
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.
Zhang, Lu, 2018, Introduction, forthcoming, European Financial Management, Special Issue on “Corporate Polices and Asset Prices”
Zhang, Lu, 2014, Exploring asset pricing anomalies, NBER Reporter 1, 17-19.
Recent Conference Presentations
Discussion on Buss, Uppal, and Vilkov (2018, “Financial innovation and asset prices”) at the 2018 UBC Summer Finance Conference, July 27, 2018, Vancouver, Canada.
Keynote lecture on “The investment CAPM: An update” at “Merton H. Miller” European Financial Management 2018 Doctoral Seminar, June 2018, Milan, Italy
Discussion on Bartram and Grinblatt (2018, “Global market inefficiencies”) at the Ben Graham Center’s 7th Symposium on Intelligent Investing, May 18, 2018, Toronto, Canada.