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Mutual funds investing in illiquid corporate bonds actively manage Treasury positions to buffer redemption shocks. This liquidity management practice can transmit non-fundamental fund flow shocks onto Treasuries, generating excess return volatility. Consistent with this hypothesis, we find that Treasury excess return volatility is positively associated with bond fund ownership, and this pattern is more pronounced among funds conducting intensive liquidity management. Causal evidence is provided by exploiting the U.S. Securities and Exchange Commission’s 2017 Liquidity Risk Management Rule. Evidence also suggests that the COVID-19 Treasury market turmoil was attributed to intensified liquidity management, an unintended consequence of the 2017 Liquidity Risk Management Rule.
February 2025
The Review of Financial Studies
The Interactions of Customer Reviews and Price and Their Dual Roles in Conveying Quality Information
Customer reviews help communicate product information, but their effectiveness may suffer from selection bias (i.e., depending on factors, such as the individual experience and price, not all consumers may voluntarily write reviews). Consequently, a seller may have to resort to additional means (e.g., signaling through price in the context of an experience good) to convey its quality. This paper develops an analytical model to investigate the interaction of customer reviews and price with the presence of selection bias in marketing an experience good with uncertain quality to consumers. Our analysis reveals the dual roles played by both customer reviews and price in communicating quality information. On one hand, customer reviews may either directly convey product information with unbiased distribution of reviews or facilitate price signaling when reviews are biased because of selection. On the other hand, price may be adjusted to mitigate the selection bias of reviews to make them more informative, and it may also signal quality directly in the presence of review bias. As a result, we show that bias in reviews may actually benefit consumers without compromising information communication as the incentive to reduce review selection bias makes it credible and profitable for the high-quality seller to signal its type by undercutting the price that would be set if it is of low quality. We then extend our analysis to examine the information, profits, and welfare impacts of several important design elements of a review system as well as the impact of consumers’ aversion to risk. Finally, the implications of our findings on the management of user-generated content and pricing are discussed.
January-February 2025
Marketing Science
Short selling regulation has been a longstanding topic of debate in financial markets, particularly during times of crisis. While proponents argue that short selling aids in price discovery and market efficiency, critics raise concerns about manipulative short selling practices that can destabilize markets. This paper presents a theoretical model to analyze the impact of short selling, specifically manipulative short selling (MSS), on bank runs and efficiency. The model demonstrates that MSS can emerge as an equilibrium outcome driven by uninformed speculators seeking to profit from artificially depressing stock prices. The prevalence of MSS is influenced by the level of informed trading and coordination friction among creditors. We find that short selling bans can enhance welfare by mitigating the negative effects of MSS, particularly in scenarios with high coordination frictions. We also provide policy and empirical implications.
January 2025
Journal of Economic Theory
Key Takeaways Net-zero portfolios (NZPs), managing over $130 trillion USD in assets, align financial performance with climate goals. These portfolios reward firms that actively reduce emissions while excluding those lagging behind, driving market incentives for decarbonization.
The study introduces distance to exit (DTE), a forward-looking metric that measures a firm’s risk of exclusion from NZPs based on its carbon footprint and decarbonization efforts.
Firms with higher DTEs—seen as safer from exclusion—tend to have higher valuations but lower expected returns, highlighting the market’s pricing of carbon-transition risks.
DTE serves as both a risk measure and a catalyst for action, incentivizing firms to accelerate decarbonization to remain in NZPs, while enabling portfolios to achieve up to 95% reductions in carbon intensity without sacrificing sector diversification. Source Publication:
10 Jan 2025
Research
Key Takeaways The agricultural export value of Brazil has quadrupled over the last two decades due to rising global demand.
Brazil’s agricultural export boom drives deforestation: between 1997 and 2019, trade-induced agricultural expansion led to the loss of 3.6 million hectares of forest.
Trade-induced deforestation causes severe health consequences: it results in over 700,000 premature deaths, primarily from cardio-respiratory diseases linked to pollution from deforestation in upwind areas.
The economic cost of these deaths is estimated at $513 billion USD—about 18% of Brazil’s total agricultural export value during the same period.
These findings highlight the negative health impacts of trade-induced deforestation and the resulting regional inequality, because mortality costs and economic benefits are not always shared by the same populations. Source Publication:
8 Jan 2025
Research
Key Takeaways This study develops a theoretical framework to explore how carbon taxes and financial market tools (e.g., sustainability-linked loans and bonds) interact in reducing carbon emissions.
Carbon taxes remain the most effective tool for achieving emission reductions and increasing welfare but are often politically constrained.
Carbon-contingent financing provides an alternative incentive for standard agents to adopt green technologies, but its effectiveness depends on the financial resources of environmentally motivated agents who are funding the transition.
Although carbon taxes and market-based solutions can coexist, carbon-contingent financing may undermine political support for taxes, potentially reducing their overall effectiveness in addressing emissions.
The model’s predictions emphasize the need for a balanced climate strategy, whereby carbon taxes and financial market solutions complement each other by targeting different regions or sectors with distinct characteristics. Source Publication:
5 Jan 2025
Research
While computer languages may sound alien to economics, I aim to showcase that good programming skills are conducive not limited to economic research, it can also open up endless career possibilities for you in the business world.
31 Jan 2022
Economics
As a teacher, I will push myself to understand the expectations of local employers' and the market dynamics of Hong Kong.
18 Jan 2022
Finance
As a science person, I am impressed by our students' strong business acumen. But as a teacher, other than teaching them how to use quantitative tools to make scientific claims, I also hope that I can encourage them to continue to stay inquisitive about the world and apply their classroom knowledge for the betterment of the society.
5 Jan 2022
Marketing
After the Second World War, London underwent a profound transformation from a global trading port to an offshore financial center. In 1964, London ranked among the top three ports in Europe, handling as much as 61.3 million tons of cargo. However, by the 1980s, with the widespread adoption of large ocean-going vessels and container technology, the local enclosed docks were geographically and structurally unable to meet the demands of modern cargo transport. As a result, the volume of goods handled dropped sharply to 25 million tons, causing London’s port to lose its leading position.
18 Jun 2025
Faculty
Van Gogh in the Chip: The Impact of Artificial Intelligence on Creative Processes and the Art Market
In recent years, the explosive development of artificial intelligence (AI) technology has sparked intense discussions and deep anxieties around the world. People are questioning whether AI will replace human jobs and disrupt various industries. As early as 2016, British physicist Stephen Hawking predicted that with the rise of AI, the middle class would inevitably be affected by the trend of job loss, and only positions that require the most care, creativity, and supervision would be preserved.
11 Jun 2025
Faculty
Recently, mainland e-commerce giants like Taobao, JD.com, and Pinduoduo have ramped up their efforts to include the Hong Kong market in their free shipping zones. In the past, Hong Kong residents had to use intermediary services to receive their orders, but the newly launched one-stop shopping services are naturally very popular.
4 Jun 2025
Faculty
In today's highly competitive business environment, innovative collaboration has become an important way for companies to gain an advantage. In innovation-driven partnerships, large enterprises often collaborate with small technology firms, integrating the latter's core technologies into their own products to drive product innovation and expand market share. To secure collaboration opportunities, small enterprises also need to demonstrate to potential partners the application potential and market prospects of their technology integration.
13 Jun 2025
Despite resource constraints and pressures coming from a growing population, can emerging economies improve healthcare access and reduce costs – without sacrificing the quality of healthcare services? Based on field visits and joint research on public health, Prof. Sundara Natarajan Panchanatham, Assistant Professor in Innovation and Information at HKU Business School, revealed that medical practices in emerging economies “can transform healthcare systems, making them more resilient and responsive to the demands of their populations.”
29 May 2025
Have you noticed how, historically, industrial revolutions across various nations mainly impacted low-income jobs? What’s different now is that the current wave in artificial intelligence seems different. AI not only automates entry-level positions but also has the potential to replace high-skilled, high-income roles. According to the International Monetary Fund (IMF), AI could affect up to 40% of global employment. That figure could be as high as 60% in developed economies like Hong Kong.
16 May 2025
After the Second World War, London underwent a profound transformation from a global trading port to an offshore financial center. In 1964, London ranked among the top three ports in Europe, handling as much as 61.3 million tons of cargo. However, by the 1980s, with the widespread adoption of large ocean-going vessels and container technology, the local enclosed docks were geographically and structurally unable to meet the demands of modern cargo transport. As a result, the volume of goods handled dropped sharply to 25 million tons, causing London’s port to lose its leading position.
18 Jun 2025
Faculty
In today's highly competitive business environment, innovative collaboration has become an important way for companies to gain an advantage. In innovation-driven partnerships, large enterprises often collaborate with small technology firms, integrating the latter's core technologies into their own products to drive product innovation and expand market share. To secure collaboration opportunities, small enterprises also need to demonstrate to potential partners the application potential and market prospects of their technology integration.
13 Jun 2025
"If it lasts more than three or four months, I think many of these small and medium-sized enterprises will not be able to bear it," said Zhiwu Chen, chair professor of finance at the University of Hong Kong.
"This is definitely a bargaining chip for the United States."
12 Jun 2025
Faculty