Areas of Expertise

Financial markets, Financial intermediation, Derivatives securities, Risk management, Portfolio management, Financial econometrics

Academic Degrees

• PhD, Economics, University of Minnesota at Twin Cities, 1995
• MA, Economics, University of Minnesota at Twin Cities, 1993
• MS, Mathematics, Dalian Institute of Technology, China, 1985
• BS, Mathematics, Dalian Institute of Technology, China, 1982

Professional Experience

• Edward E. Edwards Professor, May 2015 - present
• Kelley School of Business, Indiana University, Professor of Business Finance, with tenure, July 2012 - present
• Federal Reserve Bank of New York, Head of Financial Intermediation Function, January 2009 - June 2012
• Federal Reserve Bank of New York, Vice President, June 2005 - June 2012
• McCombs School of Business, University of Texas at Austin, Associate Professor of Finance, with tenure, July 2004 - May 2005
• Graduate School of Business, Columbia University, Associate Professor of Finance, July 1998 - June 2004
• Graduate School of Business, Columbia University, Assistant Professor of Finance, July 1995 - June 1998

Selected Publications

• Wang, Z. (2023). CoCo Bonds: Are They Debt or Equity? Do They Help Financial Stability? — Lessons from Credit Suisse NT1 Bonds. European Corporate Governance Institute. View Full Text
• Wang, Z. (2023). Are CoCo Bonds Better Than Common Equity as Capital for Financial Stability? Blog post at European Corporate Governance Institute. View Full Text
• Sundaresan, S., and Wang, Z. (2023). Strategic Bank Liability Structure Under Capital Requirements. Management Science, 69(10), 6349–6368. View Full Text

  Abstract

  Abstract

  Banks strategically choose and dynamically restructure deposits and nondeposit debt in response to the minimum requirements on total capital and tangible equity. We derive the optimal strategic liability structure and show that it minimizes the protection for deposits conditional on capital requirements. Although, given any liability structure, regulators can set capital requirements high enough to remove the incentive for risk substitution, the strategic response to the capital requirements always preserves this incentive. Banks reduce leverage but increase the proportion of nondeposit debt if regulations raise the capital requirements.

• Gambacorta, L., Ricotti, G., Sundaresan, S., and Wang, Z. (2021). Tax Effects on Bank Liability Structure. European Economic Review, 138, 103820. View Full Text

  Abstract

  Abstract

  Using supervisory data, we test the tax effects on the liability structure (the composition of deposits and other forms of debt) of the credit cooperative banks (BCC) by exploiting exogenous variations in the rates of tax on productive activities (IRAP) across Italian regions and over time. The testable predictions are derived from a model of bank liability structure that incorporates regulatory closure, endogenous default, and deposit insurance. We show that banks endogenously respond to tax cuts mainly by reducing non-deposit debt ratios, instead of deposit ratios, when lowering leverage. The overall liability structure adjustment substantially reduces non-equity funding costs.

• McAndrews, J., Sarkar, A. and Wang, Z. (2017). The Effect of the Term Auction Facility on the London Interbank Offered Rate. Journal of Banking and Finance, 83, 135-152.

  Abstract

  Abstract

  The Term Auction Facility (TAF), the first auction-based liquidity initiative by the Federal Reserve during the 2007-2009 financial crisis, was aimed at improving conditions in the dollar money market and bringing down the significantly elevated London interbank offered rate (Libor). The effectiveness of this innovative policy tool is crucial for understanding the role of the central bank in financial stability, but academic studies disagree on the empirical evidence of the TAF effect on Libor. This paper shows that the disagreement arises from mis-specifications of econometric models. Regressions using the daily level of the Libor-OIS spread as the dependent variable miss either the permanent or temporary TAF effect, depending on whether the dummy variable indicates the events of the TAF or the regimes before and after the TAF. Those regressions also suffer from the unit-root problem and produce unreliable test statistics. By contrast, regressions using the daily change in the Libor-OIS spread are robust to the persistence of the TAF effect and the unit-root problem, consistently producing reliable evidence that the TAF was associated with downward shifts of the Libor-OIS spread. The evidence indicates the efficacy of the TAF in helping the interbank market to relieve liquidity strains.

• Sundaresan, S. M., and Wang, Z. (2015). On the Design of Contingent Capital with a Market Trigger. Journal of Finance, 70(2), 881-920.

  Abstract

  Abstract

  Contingent capital (CC), which intends to internalize the costs of too-big-to-fail in the capital structure of large banks, has been under intense debate by policy makers and academics. We show that CC with a market trigger, in which direct stake-holders are unable to choose optimal conversion policies, does not lead to a unique competitive equilibrium, unless value transfer at conversion is not expected ex-ante. The "no value transfer'' restriction precludes penalizing bank managers for taking excessive risk. Multiplicity or absence of an equilibrium introduces the potential for price uncertainty, market manipulation, inefficient capital allocation, and frequent conversion errors. These results point to the need to explore alternative designs of a prudential capital structure for banks.

• Wang, Z., and Zhang, X. (2012). Empirical Evaluation of Asset Pricing Models: Arbitrage and Pricing Errors in Contingent Claims. Journal of Empirical Finance, 19(1), 65–78.
• Glasserman, P., and Wang, Z. (2011). Valuing the Treasury's Capital Assistance Program. Management Science, 57(7), 1195-1211.
• Guasoni, P., Huberman, G., and Wang, Z. (2011). Performance Maximization of Actively Managed Funds. Journal of Financial Economics, 101(3), 574-595.
• Sundaresan, S., and Wang, Z. (2009). Y2K Options and the Liquidity Premium in Treasury Markets. Review of Financial Studies, 22(3), 1021 - 1056.
• Wang, Z. (2005). A Shrinkage Approach to Model Uncertainty and Asset Allocation. Review of Financial Studies, 18(2), 673-705.
• Jagannathan, R., and Wang, Z. (2002). Empirical Evaluation of Asset Pricing Models: A Comparison of the SDF and Beta Methods. Journal of Finance, 57(5), 2337-2367.
• Jagannathan, R., and Wang, Z. (1998). An Asymptotic Theory for Estimating Beta-Pricing Models Using Cross-Sectional Regression. Journal of Finance, 53(4), 1285-1309.
• Wang, Z. (1998). Efficiency Loss and Constraints on Portfolio Holdings. Journal of Financial Economics, 48(3), 359-375.
• Jagannathan, R., and Wang, Z. (1996). The Conditional CAPM and the Cross-Section of Expected Returns. Journal of Finance, 51(1), 3-53.

Edited on March 13, 2024