QI SHANG PhD Candidate in Finance London School of Economics and Political Sciences
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Contact Information: Email Address q.shang@lse.ac.uk Office Address Old Building 2.12 Department of Finance London School of Economics and Political Sciences Houghton Street London U.K. WC2A 2AE Mobile: +44(0)7701091176	PAPERS
	JOB MARKET PAPER OTHER PAPERS	Limited Arbitrage Analysis of CDS Basis Trading By modeling time-varying funding costs and demand pressure as the limits to arbitrage, the paper shows that assets with identical cash-flows have not only different expected returns, but also different expected returns in excess of funding costs. I solve the model in closed-form to show that arbitrage on the CDS and corporate bond market is risky regardless of the degree of price discrepancy. The profitability and risk of this arbitrage, which is called CDS-basis trading, are increasing in market friction levels and assets' maturities. High levels of market frictions also destruct the positive predictability of credit spread term structure on credit spread changes. Empirical results support model predictions. CDS-basis trading is exposed to systematic risk factors, while TED spread squared times adjusted corporate bond trading volume predicts abnormal CDS-basis trading return in the latter half of 2008.
		Institutional Asset Pricing with Heterogeneous Belief (co-authored with Zhigang Qiu, Shiyang Huang and Ke Tang) We propose an equilibrium asset pricing model in which institutional investors with heterogeneous beliefs care about the relative performance. We find that relative performance has two effects on the agents. First, it leads agents to trade more similarly, which effectively decreases the difference of opinions. Second, it decreases the impact of dominant agent in the extreme economy which effectively increases the difference of opinions. When the first effect is dominant, the volatility is lower with relative performance than that without relative performance. When the economy is extremely good or bad, the second effect is dominant, the volatility is higher. Moreover, the stock price, Sharpe ratio and the counter-cyclical effect are all affected by the relative performance in the equilibrium.
		General Equilibrium Analysis of Portfolio Benchmarking (working paper) This paper models a continuous-time economy consisting one normal agent and one constrained agent who has portfolio benchmarking concerns. The constrained agent has to keep intermediate wealth above a stochastic benchmark whose value is determined endogenously. The equilibrium is solved in closed-form. In this benchmarking economy before the constraint date, if the benchmark is very risky, asset price, volatility and risk premium are higher than those in the normal economy without constrained agents. When the benchmark is relatively safe, asset price is higher but volatility, risk premium and the optimal fraction of wealth invested in the risky asset decreases.
		Measures of Stock Fragility and Crowded Trades (Research in Progress) In my industry research projects, I construct a number of empirical proxies to measure crowded trades by financial institutions and study their impact on quantitative investment strategy performance. Inputs of these proxies include analysts' revisions data and stock trading volume data. Decomposing trading volume into systematic part and idiosyncratic part provides additional information that identifies fragile stocks, reduces quantitative strategy volatility and improves performance. I intend to strengthen the robustness of results with more comprehensive data sets and derive theoretical foundations for my findings.