Historically, businesses with the largest cash flows and capital reserves were the biggest investors—but this is no longer the case. Economists have long struggled to explain why the relationship between corporate investment and cash flow has weakened and even disappeared in the last few decades. Thanks to the pioneering work of HKUST’s Chu Zhang and co ... Read More

Firms return capital to their equity investors through their “payout policy.” In the case of “dividend payouts,” money is usually transferred to shareholders’ accounts at regular intervals. Despite the tax disadvantage, dividend payouts remain economically significant and resilient. However, we do not yet know how dividend payout raises and cuts affect ... Read More

Counterparty credit risk (CCR) refers to the risk that a counterparty will not pay up as obligated in a contract. Under such circumstances, an economic loss would occur if the transaction with the counterparty has a positive economic value at the time of default. In recent years, counterparty credit risk has become a prominent risk for market participants ... Read More

ESG, or Environmental, Social, and Governance, has become a hot topic recently. In this article I summarize what I have learned about environmental risks from various sources, and provide my thoughts on academic research focusing on green finance. These thoughts reflect my limited exposure to the subject. Environmental Risks Environmental disasters can ... Read More

In this presentation, Prof Chu Zhang will explain in layman’s language a recently published research paper regarding Hong Kong’s derivative warrant market. The paper addresses the questions of whether counterparty risk is priced in derivatives in general. The research results show counterparty credit risk matters for derivative pricing. ... Read More

Derivative warrants typically cost more than otherwise identical options, a situation that on the surface seems to defy logic. However, they are preferred by traders who trade frequently so there is something else at play besides price. Chu Zhang of HKUST and co-author Gang Li investigated and found some distinct, non-price advantages. Derivative warrants ... Read More