Welcome to my personal website.
I am Chunjie Wang, a PhD student with the finance department of Stockholm School of Economics. My research interest lies in empirical and theoretical asset pricing.
I am on the 24-25 job market.
Working Paper
Asset pricing, not equity pricing
job market paper
This paper demonstrates that building characteristics-managed factors using firms' asset returns greatly reduces the number of factors necessary to explain the cross-section. A 5-factor model based on asset returns explains 62.4% of the variation in 100 factors, whereas an 88-factor model using equity returns explains only 38.6%. Out-of-sample, the asset-based implied mean-variance-efficient (MVE) portfolio achieves a Sharpe ratio of 1.2, compared with 0.75 for its equity-based counterpart. The parsimonious asset-based model explains equity returns better than the equity-based model, as it reduces the number of equity anomalies to 15 compared with 23 for the latter. The nonlinear transformation of returns caused by leverage increases the loadings of firms with high leverage on the equity-based factors, exposes these factors to firm-level systematic risks that would not arise in asset-based factors, and contributes to the factor zoo.
Betting on Stocks with Options??
with Adrien d’Avernas, Christian Schlag, Tobias Sichert, and Martin Waibel
We employ machine learning models to study the predictability of hold-until-maturity single stock option returns and find that nonlinear machine learning models generate statistically and economically superior forecasts. While both options and stock characteristics are important for predicting option returns, we show that the expected return of the underlying stock does not predict future option returns. Moreover, trading options based on the underlying’s expected stock return generates low returns that violate a model-free lower bound. These results constitute a puzzle relative to standard option pricing models and show that options are not a suitable instrument to harvest the risk premia embedded in the underlying stock.
