Weina Zhang

• PhD
• Associate Professor at National University of Singapore

Microfinance institutions (MFIs) are hybrid organisations with the dual mission of financial sustainability and social purpose. However, there is little empirical evidence on how the two missions may affect each other intertemporally. In this study, we test the lead-lag reciprocal relation between financial and social performance in a sample of 852...

Purpose The purpose of this paper is to reveal the economic impact of policy reversals related to market liberalization reforms in China. Design/methodology/approach To perform the analysis, the authors hand-collect 59 financial market liberalization policy reversals from 1999 to 2017. These reversals are related to the liberalization of the stock...

We test whether policy risk is systematically priced in equity returns across 49 countries from 1995 to 2013. We construct two global policy risk factors based on the ratings from international country risk guide. They capture the policy risk from government instability (GOVLMH) and the quality of bureaucracy (BURLMH). Both factors are significantl...

We show that the traditional western style corporate governance tools are ineffective in Chinese real estate firms from 2000 to 2012. Instead, we find evidence of effective state governance such as corruption cleanups and financial market liberalization. Specifically, the less state-connected firms experience better performance in provinces with gr...

We provide a comprehensive empirical analysis on the implication of CDS-Bond basis arbitrage for the pricing of corporate bonds. Basis arbitrageurs introduce new risks such as funding liquidity and counterparty risk into the corporate bond market, which was dominated by passive investors before the existence of credit default swap (CDS). We show th...

We find that higher stock lending fees predict significantly lower future returns after controlling for shorting demand for U.S. stocks during the period 2007–2010. These results suggest that active institutional investors on the supply side play an important role in the return predictability of fees and they not only respond to demand but also pri...

This study provides new evidence about short sellers’ trading strategies by showing that short sellers exploit firm information in combination with industry information in their trades. In industries with the highest aggregate shorted values, the most-shorted stocks earn about 1.535% lower abnormal returns than other highly shorted stocks in less s...

Purpose: This study seeks to explore the presence and the relative strength of market efficiency in the onshore and offshore Renminbi (RMB) forward markets. Methodology/approach: In the onshore and offshore foreign exchange markets, the RMB forward contracts are designed in similar ways. However, the underlying economic forces and regulatory framew...

We examine the predictive power of the CDS-bond basis for future corporate bond returns. We find that residual basis, the part of the CDS-bond basis that cannot be explained by a wide range of market frictions such as counterparty risk, funding risk, and liquidity risk, strongly negatively predicts excess returns. Controlling for systematic risk fa...

We show that traditional western style corporate governance tools are ineffective in Chinese real estate firms by using data from 2000 to 2012. Instead, we find evidence of effective state governance, such as corruption cleanups and financial market liberalization. Specifically, firms with fewer state connections experience better performance in pr...

We examine whether Standard & Poor’s (S&P) credit rating action reports contain new default-related information beyond credit rating actions such as rating changes, credit watch, and outlooks. We find that the net linguistic tone (negative minus positive tone) in the reports is significantly and negatively related to abnormal returns and predicts f...

This study provides new evidence that short sellers have superior skills in processing industry information. In industries with the highest aggregate shorted values, the most-shorted stocks earn –2.76% abnormal returns over the next six months. These results are likely driven by short sellers' preference for complex industries with the highest prof...

In a sample of U.S. stocks, higher stock lending fees predict significantly lower excess returns beyond shorting demand and loan supply. This relation is stronger after October 2008 which is likely attributable to a regime shift in the lending market with the onset of the Global Financial Crisis. We show that active institutional lenders not only r...

Purpose – The purpose of this paper is to examine how policy instability is priced in interest rates. Policy instability refers to the likelihood that the current policy will be changed in the future in the absence of political power shifts. Design/methodology/approach – Chinese government’s experimental policy-making approach provides an ideal se...

Using novel U.S. equity lending market data from 2007 to 2010, we find that stock lending fees predict future returns beyond shorting demand. We link this change in the predictability of fees to a regime shift in the stock lending market following the collapse of Lehman Brothers. We provide direct evidence of proactive pricing behavior in the lendi...

The study examines how stock market prices the stocks of socially ambiguous “Grey” firms, who are socially responsible in certain corporate social responsibility (CSR) dimensions while being socially irresponsible in other dimensions. Using firm data from 1992 to 2011, we find that the value-weighted “Grey” portfolio earns an annual abnormal return...

This study provides new evidence about short sellers' trading strategies by showing that short sellers exploit firm information in combination with industry information in their trades. In industries with the highest aggregate shorted values, the most-shorted stocks earn about 1.535% lower abnormal returns than other highly shorted stocks in less s...

We show that the traditional western style corporate governance tools are ineffective in

Using novel U.S. equity lending market data from 2007 to 2010, we find that stock lending fees strongly predict future returns. We posit that, in the newly transparent lending market, active institutional lenders are proactive in pricing. We show that lending fees are raised in expectation of higher shorting demand, especially before earnings annou...

This study provides new insights about the source of short sale constraints, by showing that lending fees predict future returns beyond shorting demand in recent years. Focusing on lenders' perspective, we reveal that lending fees are on average significantly higher for stocks with large active intuitional ownership. For stocks with high active ins...

We show that residual basis, the part of the CDS-bond basis that cannot be explained by a wide range of market frictions, captures arbitrage opportunities between corporate bonds and CDS. A 20-day trading strategy based on the residual basis generates a significant abnormal bond return of 1.78%. The residual basis strongly predicts price convergenc...

We explore how efficiently new information transmits along the supply chain in corporate bond market. We find a strong predictability of the lagged bond returns of customers for related firm- and industry-level future bond returns. This is in contrast to a lack of predictability of stock returns along the supply chain for the same set of companies....

We dissect the information content of sovereign credit rating reports issued by Moody’s in 62 countries for the period 2003–2013. Using the Naïve Bayesian machine learning algorithm, we classify all sentences in each report into positive and negative tone, as well as six informational categories. We find that the negative tone related to “debt dyna...

We test whether policy uncertainty affects international equity returns. We construct two measures of global policy uncertainty based on the ratings from international country risk guide. They capture the potential policy shock from government changes and the bureaucratic ability to reduce policy shocks. Both factors significantly affect equity ret...

We test if Standard & Poor’s (S&P) credit rating reports contain valuable information beyond credit ratings. We find that positive (negative) linguistic tone in the reports are significantly related to positive (negative) abnormal returns at the time of downgrade announcement and the tone can predict future rating downgrades. We discover that the p...

Akerlof (2007) proposes that the norms of decision makers can bridge the gap between New Classical economic theories and conflicting empirical evidence. We apply his framework to cross-country capital structure decision making and propose a norm theory of capital structure. Consistent with its predictions, we find that two principal components that...

We provide a comprehensive empirical analysis on the implication of CDS-Bond basis arbitrage for the pricing of corporate bonds. Basis arbitrageurs introduce new risks such as funding liquidity and counterparty risk into the corporate bond market, which was dominated by passive investors before the existence of CDS. We show that a basis factor, con...

Our study is the first to examine the effect of policy instability on interest rates. China offers a natural setting for the experiment because financial market liberalization policy flip-flops recur. When a policy is reversed, interest rate level and spread can increase or decrease in the interbank repo market. Accounting for the bureaucratic qual...

In pricing real estate with indifference pricing approach, market incompleteness significantly distorts the conventional pricing relationships between real estate and financial asset. In this paper, we focus on the pricing implication of market comovement because comovement tends to be stronger in financial crisis when investors are especially sens...

This study finds that Watchlist contains most valuable information among various credit news announcements. The CAR[-3,6] averages to -1.3% for negative Watchlist news and 0.6% for positive news from 2002 to 2007. The positive Watchlist news has the strongest effect on subordinated, small and speculative bonds. After conditioning the rating changes...

We provide a comprehensive empirical analysis on the CDS-Bond basis trade and its implications for the pricing of corporate bonds. The basis trade attracts arbitrageurs to the corporate bond market, which has been dominated by buy-and-hold investors. The risks involved in the basis trade could affect the pricing of corporate bonds through trading a...

We propose a new approach to portfolio optimization by separating asset return distributions into positive and negative half-spaces. The approach minimizes a newly-defined Partitioned Value-at-Risk (PVaR) risk measure by using half-space statistical information. Using simulated data, the PVaR approach always generates better risk-return tradeoffs i...

This paper explores the characteristics of various types of risks priced in corporate bonds identified by the spread decomposition literature. They include default risk, recovery risk, and liquidity risk. Taking direct approximations of these risks using extensive data on aggregate level, we find that common systematic risk factors can explain thes...