Yizhou Xiao
Stanford Graduate School of Business
655 Knight Way
Phone:
(650) 704-2441
Stanford, CA 94305
Email:
yizhoux@stanford.edu
Education
2016
Ph.D. in Finance, Stanford Graduate School of Business (Expected)
2010
M.A. in Economics, CCER, Peking University
2007
B.A. in Finance, Renmin University of China
Research Interests
Market Microstructure, Dynamic Corporate Theory, Entrepreneurial Finance, Banking
Research
Working Papers
Informed Trading and Intertemporal Substitution: The Limits of the No-Trade Theorem (Job Market Paper)
Presented at the 26th International Conference on Game Theory 2015
I examine the conditions for the no-trade theorem to hold in multiperiod consumption settings and
show it no longer holds in many reasonable scenarios. In situations where agents have different concerns for intertemporal substitution, information-based trade can be mutually acceptable because it
enables agents to readjust their consumption profiles based on future consumption shocks. I show
that the existing literature that finds no-trade results in various multiperiod consumption settings crucially depends on specific preference assumptions that lead to risk aversion dominating concerns for
intertemporal substitution. The no-trade theorem fails to hold when a wider range of utility functions
with a more important role for intertemporal substitution are considered. Intertemporal substitution
bridges information-based trading and consumption-based asset pricing. Consumption-based asset
pricing models are natural candidates to analyze information-based trading, and information-based
Yizhou Xiao
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trading affects the volatility of individual consumption processes. Quantitative analysis demonstrates
that besides asset pricing implications, information-based trading related to intertemporal consumption smoothing can also explain a significant part of the trading volume observed in financial markets.
Collateral Constraints, Access to Debt Financing and Firm Growth
Presented at the 11th World Congress of the Econometric Society 2015
This paper studies how a firm’s growth is affected by the evolution of its external debt financing
environment. Asymmetric information about the qualities of projects the firm can undertake makes
external financing costly. Collateral can mitigate this problem, but its availability is limited by the
size of the firm. As a firm grows, more collateral becomes available, broadening the firm‘s access to
external debt financing channels and lowering its cost of capital. The firm‘s growth decision is affected
by how effective additional collateral can be in lowering its cost of capital and the amount of assets it
needs to accumulate to broaden its access to potential lending channels. A small firm may optimally
choose to stay small when it is financially constrained and far from the size necessary to have access
to formal lending. When the size of a small firm approaches the level needed to have access to formal
lending there arises a strong incentive to expand, making the firm locally risk loving. The framework
I study also raises some questions about the frequent use of a firm’s growth rate as an empirical proxy
for firm value. I show that a high growth rate is not necessarily associated with high firm value.
Pessimistic Leverage
In the literature on trading involving leveraged positions when there are heterogeneous beliefs, people
take it as granted that it must be the optimists who take leverage to buy risky assets. However, many
studies on the recent housing bubble find that the lenders, such as banks and investors in the mortgage
loan market, might be the optimists. This paper studies the possibility of the pessimistic agents taking
on leverage. Pessimistic leverage is possible because the leverage trading can be viewed as a joint
investment in which the lender takes the upper part of the asset payoff while the borrower takes the
bottom part. When the optimists are relatively more optimistic about the downside payments, it is
optimal for the pessimists to purchase the asset and take leverage. In pessimistic leverage, traders may
take leverage even when their cash constraints are not binding, and buying the asset is not profitable.
Working in Progress
Lending Constraints for Banks and the Chinese Loan Quota System (With Lin William Cong)
VC Fund as a Portfolio
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Awards and Distinctions
2010-2015
Stanford Graduate School of Business Fellowship
2013-2014
George P. Shultz Scholar, Stanford Institute for Economic Policy Research
2007-2009
Guanghua Prize
2007
Graduate Merit Awards (Top 1%)
Teaching and Research Assistantships
2014
Finance for Non-MBAs, TA to Prof. Joy Ishii
2012-2014
Finance for Non-MBAs, TA to Prof. Anat Admati
2013
Financial Market I (Ph.D. Level), TA to Prof. Bradyn Breon-Drish
2012
Accelerated Corporate Finance, TA to Prof. Jeffrey Zwiebel
2009
Topics in Econometrics (Ph.D. Level), TA to Prof. Han Hong
2009
Game Theory (Undergraduate Level), TA to Prof. Ho-Mou Wu
2008-2009
Financial Economics (Ph.D. Level), TA to Prof. Henry Cao
2013
RA to Prof. Bradyn Breon-Drish
References
Paul Pfleiderer (Advisor)
Peter M. DeMarzo
C.O.G. Miller Distinguished Professor of Finance
Mizuho Financial Group Professor of Finance
Stanford Graduate School of Business
Stanford Graduate School of Business
Phone: (650) 723-4495
Phone: (650) 736-1082
Email: pfleider@stanford.edu
Email: pdemarzo@stanford.edu
Bradyn Breon-Drish
Timothy James McQuade
Assistant Professor of Finance
Assistant Professor of Finance
Stanford Graduate School of Business
Stanford Graduate School of Business
Phone: (650) 725-1901
Phone: (650) 725-5929
Email: breon@stanford.edu
Email: tmcquade@stanford.edu