Hongjun Yan



Associate Professor of Finance

Yale School of Management

Tel: (203) 432-6277

Email: hongjun.yan @ yale.edu

Web: http://faculty.som.yale.edu/hongjunyan/

Research interest: Asset Pricing with frictions: Heterogeneous Beliefs, Learning, Reputation and Bounded Rationality.

Education: PhD in Finance, London Business School, 2005.

Curriculum Vitae

Research Statement

Publication and forthcoming:

·        Natural Selection in Financial Markets: Does It Work? Management Science, 2008, 54 (11), 1935-1950.

Selection is excessively slow. Even slightly different preference parameters can make a “very wrong” investor dominate the market.

·        Heterogeneous Expectations and Bond Markets, with Wei Xiong, Review of Financial Studies, 2010, 23 1405-1432.

The relative wealth fluctuation, induced by heterogeneous expectations, affects the joint behavior of yield curve, bond premium, yield volatility, and trading volume. 

·        Equilibrium Asset Prices and Investor Behavior in the Presence of Money Illusion, with Suleyman Basak, Review of Economic Studies, 2010, 77, 914–936.

Money illusion, where investors (partially) overlook the impact of inflation, typically only leads to a negligible welfare loss on investors but has a considerable impact on the equilibrium.

Ø  An earlier version with an alternative preference-based formulation.

·        Is Noise Trading Cancelled Out by Aggregation?, Management Science, 2010, 56 (7), 1047–1059.

Individual biases often have a significant impact on the equilibrium at the aggregate level even if the biases are independent across investors.

Ø  Lead article

·         The Behavior of Individual and Aggregate Stock Prices, Mathematics and Financial Economics, 2011, 4 (2), 135–159.

News of an individual stock normally has a trivial impact on the whole economy. News of the aggregate stock market, however, may have a significant impact on the prospects of the economy, and so a large impact on the pricing kernel. This leads to the different behavior of individual and aggregate stock prices.

·        What Does Stock Ownership Breadth Measure?, with James Choi and Li Jin, Review of Finance 2013 17 (4) 1239-1278.

When you see lots of people piling their money into a stock.... Run away!

Ø  Lead article

·        Anticipated and Repeated Shocks in Liquid Markets, with Dong Lou and Jinfan Zhang, Review of Financial Studies, 2013, 26 (8), 1891-1912.

Treasury prices in the secondary market decrease significantly before auctions and recover shortly after, i.e., prices are low when the Treasury Department sells. This implies a large issuance cost (more than half a billion dollars for issuing Treasury notes in 2007).

Ø  Winner of NASDAQ OMX Award for the Best Paper on Asset Pricing at WFA, 2011.

·        Uncertainty and Valuations, with Martijn Cremers, Critical Finance Review  forthcoming

A litmus test for the idea that uncertainty about a firm’s profitability increases its stock valuation (e.g., tech stock during late 1990’s). This idea implies that uncertainty increases stock valuations but decreases corporate bond valuations. We test this using a number of uncertainty measures, and the evidence is generally not supportive of this idea.

·        Collateral-motivated Financial Innovation, with Ji Shen and Jinfan Zhang, Review of Financial Studies, 2014, 27 (10): 2961-2997.

Collateral frictions have a profound effect on our economic landscape, ranging from the design of financial securities, laws, institutions, to various rules and regulations.




Working paper:

·        Financial Intermediation Chains in an OTC Market, with Ji Shen and Bin Wei (May 2015).

Modern financial markets have long intermediation chains (many layers of intermediaries). This paper offers a theory and its empirical assessment.

Ø  The version with more details on proofs.


·        A Model of Anomaly Discovery, with Bo Sun, Qi Liu, and Lei Lu (January 2015)

After an anomaly is discovered, the correlation between its deciles 1 and 10 decreases and becomes correlated with hedge funds’ wealth volatility. Here is an example for momentum.


·        A Search Model of Aggregate Demand for Liquidity and Safety, with Ji Shen, (May 2015)

An increase in the supply of Treasury securities decreases the credit spread of investment-grade bonds, but increases the spread between investment-grade and junk bonds. Contrast the reduced form “money-in-the-utility-function” approach with the approach that explicitly models trading friction.

Appendix with detailed proofs


·        Informed Trading and the Cost of Capital, with James Choi and Li Jin (August 2014)

Information asymmetry, identified from detailed trading data, increases expected returns.

Ø  Featured at the NBER Digest

Ø  VOX Column


·        Reputation Concerns and Slow-Moving Capital, with Steven Malliaris (March 2015)

Reputation concerns lead to extremely slow-moving capital. After poor performances in a certain strategy, managers with damaged reputation are reluctant to return to the same strategy before their reputation recovers, which is very slow.


·        Multiplicity and Stability of OCT Market Equilibrium, with Ji Shen (coming soon)

There are usually 3 equilibria in an OTC market model, only one of them is “stable.”


·        Levered ETFs, with Wenxi Jiang (coming soon)

Each year, levered ETF investors pay $1 billion (5% of the market cap) to play this short-term speculation game. 



Teaching: Options and Futures (MBA); Fixed-income Security Analysis (MBA); International Study Trip to China (MBA); Accounting/Finance Workshop (PhD)