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Zhiwu Chen
Professor of Finance
Yale University 
School of Management
135 Prospect Street 
New Haven, CT 06520, USA
(203) 432-5948 (phone)
(203) 432-6970 (fax)
zhiwu.chen@yale.edu (e-mail)
Working Papers
Review on Research
Random Musings
Yale SOM

** Visit our new China Initiative website: http://icf.som.yale.edu/research/china_intiative.shtml


* Click here for MGT 647: Hedge Funds if you are taking the course


On this site, you can get information about my research and professional background. My research and teaching interest is mostly in the stock markets, bond markets, options and futures markets, and the macro economy. I started my research career on the implications of demographic changes on capital markets, and continued into investigating the connections between the spirit of capitalism and financial market prices. Other areas in which I have published work include financial innovations, asset pricing in frictional economies, and options pricing. You can read about my past research in a short essay.

I have devoted most of my recent efforts to stock valuation and options pricing. Equity valuation is a practically exciting and intellectually challenging problem that both researchers and practitioners have not been able to successfully solve. On the one hand, in their daily investing life money managers and individual investors have to face such direct questions as:

On the other hand, academic asset pricing theory has almost exclusively focused on understanding and explaining a stock's expected return, rather than on determining the stock's fair value. Of course, understanding and explaining each stock's expected return is important and fundamental for solving the stock valuation problem. But, that is only one major step to solving the problem. As a practical and empirical matter, one cannot observe what the expected return is on, say, Intel going one year forward, making it at best difficult (if ever possible) to empirically judge whether any given expected-return theory works or not. Still, even if one would know what the expected future return is on Intel, it would not be sufficient to allow one to know whether $130 per share is too high or too low for Intel.

Ultimately, a "good" asset pricing theory should be judged based on whether the model-determined stock price from the theory is, in some way and according to certain yardsticks, consistent with the directly observed market price for the stock.

Random Musings on Expected Returns vs Stock Valuation

"I have a good theory that can explain the expected future return on every stock," says John to Joe.

"So, what is the expected one-year-forward return on IBM today?" Joe replies excitedly.

"Aaaaaaaaah .... I don't know and I cannot determine it. My theory can explain it, though. Once the expected IBM return is known, that is."

You can read Other random musings.

  • Ph. D., Yale University, 1990
  • M. S., Changsha Institute of Technology, China, 1986
  • B. S., Central-South University of Technology, China, 1983
  • Market-Neutral Hedge Funds, Fall 2003
  • Emerging Market Finance, Spring and Fall 2003.
  • MGT 890: Valuation, Investment, Corporate Finance and Options (you should check this out if you are taking this class in Fall 2000)
  • MGT 544a: Investment Management:
  • Econ 670a /MGT 740a -- Financial Economics I
  • Business Finance -- Futures and Options

  • Last updated Oct. 20, 2000.