Yizhou Xiao

Yizhou Xiao
PhD Student, Finance
PhD Program Office Graduate School of Business Stanford University 655 Knight Way Stanford, CA 94305

Yizhou Xiao

Faculty Advisors


Job Market Paper

Informed Trading and Intertemporal Substitution: The Limits of the No-Trade Theorem

I examine the conditions for the no-trade theorem to hold in multiperiod consumption settings and show it no longer holds in many reasonable scenarios. In situations where agents have different concerns for intertemporal substitution, information-based trade can be mutually acceptable because it enables agents to readjust their consumption profiles based on future consumption shocks. I show that the existing literature that finds no-trade results in various multiperiod consumption settings crucially depends on specific preference assumptions that lead to risk aversion dominating concerns for intertemporal substitution. The no-trade theorem fails to hold when a wider range of utility functions with a more important role for intertemporal substitution are considered. Intertemporal substitution bridges information-based trading and consumption-based asset pricing. Consumption-based asset pricing models are natural candidates to analyze information-based trading, and information-based trading affects the volatility of individual consumption processes. Quantitative analysis demonstrates that besides asset pricing implications, information-based trading related to intertemporal consumption smoothing can also explain a significant part of the trading volume observed in financial markets.

Working Papers

Collateral Constraints, Access to Debt Financing and Firm Growth

Pessimistic Leverage

Work in Progress

Lending constraints for banks and the Chinese loan quota system (With Lin William Cong)

VC Fund as a Portfolio