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
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 speech at the European Financial Management Symposium on “Finance and Real Economy,” April 2017, Xiamen, China
Replicating anomalies (Hou, Xue, and Zhang 2017). Keynote address at for the Autumn 2017 Inquire Europe Symposium on “Advances in factor investing,” October 2017, Montreux, Switzerland | 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
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
Essays on the cross-section of returns, 2002, The Wharton School, University of Pennsylvania
Goncalves, Andrei S., Chen Xue, and Lu Zhang, 2017, Aggregation, capital heterogeneity, and the investment CAPM. Slides
Two innovations (aggregation and current assets as a production input) in the structural investment CAPM go a long way in explaining value and momentum simultaneously.
The investment CAPM provides an economic foundation for Graham and Dodd’s (1934) Security Analysis, without mispricing. And augmenting the q-factor model with an expected growth factor improves the model’s performance substantially.
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.
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.
[All articles are the sole copyright of the respective publishers. Materials are provided for educational use only]
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 Tang, Yue, Jin (Ginger) Wu, and Lu Zhang, Do anomalies exist ex ante?, Review of Finance 18 (3), 843-875, lead article.
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
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.
Zhang, Lu, 2014, Exploring asset pricing anomalies, NBER Reporter 1, 17-19.