Trade imbalance Network and Currency Returns

(with  Lucio Sarno and Xiaoxia Ye)  SSRN versionRevise & Resubmit, Journal of Financial Economics


We extend the theory of Gabaix and Maggiori (2015a, 2015b) to study currency risk premia in a multi-country world with imperfect financial markets. Currency returns are connected to financiers’ limited commitment, captured by the complexity of their balance sheets in the trade imbalance network. Guided by the theory, we construct a characteristic, CBC, based on the centrality of the imbalance network and variance-covariance of currency returns. Sorting currencies on CBC generates a high Sharpe ratio, and the resulting excess returns cannot be explained by standard currency factors and intermediary asset pricing factors, suggesting a novel source of currency predictability.

ConferenceBank of Lithuania 2023; Bank of Canada 13th Workshop on Exchange Rates 2023; SGF 2024; Frontier of Factor Investing Conference 2024; WFA 2024; CICF 2024; CFRC 2024; EFA 2024)

From employee to entrepreneur: The role of unemployment risk 

(with Sara Jonsson, Xiaoyang Li,  Qinglin Ouyang). Revise & Resubmit, Journal of Financial Economics.


We use Swedish administrative data to study the role of unemployment risk in salaried employees' decisions to become entrepreneurs. Using the 2001 relaxation of the Last-In-First-Out (LIFO) dismissal rule in Sweden as an exogenous shock to unemployment risk, we find that employees facing increased unemployment risk are more likely to become entrepreneurs. The effect is more pronounced for employees with longer tenure, who are therefore exposed to greater unemployment risk. When we track entrepreneurs' income dynamics and the performance of their ventures, we find that entrepreneurs who used to face greater unemployment risk outperform other entrepreneurs in the long run. Our results provide some of the first empirical evidence on how employees respond to increased unemployment risk.

Conference: AEA 2022

Commodity Inflation Risk Premium and Stock Market Returns

(with Emmanouil Platanakis, Xiaoxia Ye and Guofu Zhou)  SSRN version  DATA PAGE


We propose a novel measure of commodity inflation risk premium (cIRP) based on a term structure model of commodity futures. The cIRP, capturing forward-looking information in the futures markets, outperforms well-known characteristics in explaining the cross-section of commodity returns. The associated cIRP factor has the highest Sharpe ratio among the existing factors, and has substantial new information beyond them. Moreover, various aggregations of the individual cIRP predict stock market returns significantly, even after controlling for major economic predictors including the usual inflation measure. The link between commodities and the stock market is stronger than previously thought.

Conference: FMA 2022 (Semifinallist of the best paper award for investment); SGF 2023

Term Premia Co-movement and Global Trade Network

(with Caihong Xu and Xiaoxia Ye) SSRN version


In this paper, we study how the global trade network provides a channel through which term premia comove and transmit across a large group of countries consisting of both developed and developing economies. We provide the theoretical derivations on why the term premia may decrease with the trade network centrality and conjuncture that the information contained in the trade network can predict the trading partners’ term premium change. We test our theoretical predictions with empirical analyses using both trade data and bond yields across different maturities from 37 countries. We show that the links of the global trade network contain useful information in explaining the variations in term premia through time and cross countries. Term premia co-movement and transmission are more pronounced among the developed countries than the developing countries. The theoretical and empirical evidence in this paper indicate the propagation of global and local country shocks transferring in the global macro-economy through the global trade network.

Conference: CICF 2023; AMES 2023

Permanent Working Paper

The variance based efficiency test of the OMX Index option market

(with Magnus Wiktorsson and RuiZhi, Zhao). Permanent Working Paper. SU Working Paper here


We use the economic policy uncertainty indices of Baker, Bloom, and Davis (2016) in combination with themixed data sampling (MIDAS) approach to investigate the US and UK stock market movements. The long-runUS-UK stock market correlation depends positively on US economic policy uncertainty shocks. The US long-run stock market volatility depends significantly on the US economic policy uncertainty shocks but not on UK shocks while the UK depends significantly on both.