Hao Pang

Contact

Email: hao [dot] pang [at] utdallas [dot] edu 

Add: Office 14-213 , Jindal School of Management, University of Texas at Dallas, 800 W. Campbell Road, Richardson, TX 75080

Published Papers

Common shocks in stocks and bonds, with Anna Cieslak,  Journal of Financial Economics, November 2021, 142(2), 880-904     

[Published] [SSRN]

Media: Forbes

Contagion in a network of heterogeneous banks, with Ramazan Gençay, Michael C Tseng, Yi Xue,  Journal of Banking & Finance, February 2020, 111, 105725    

[Published] [SSRN]

Working Papers

Did I make myself clear? The Fed and the market in the post-2020 framework period, with Anna Cieslak, Michael McMahon [Latest version]

Conference draft for "An agenda for the Federal Reserve’s review of its monetary policy framework" at the Brookings Institution 

We study the Federal Reserve's monetary policy communication in the post-2020 period, focusing on its impact on market expectations and term premia. We explore a channel whereby changing public perceptions of policy mistakes due to communication failures can raise risk premia. We document that the FOMC's post-framework communication sowed uncertainty about the Fed's reaction function, especially its response to inflation. Concerns about policy mistakes raised term premia, undermining the easy financial conditions the Fed initially sought. While the pre-tightening period saw an increased sensitivity of term premia to inflationary surprises, the hawkish pivot post-March 2022 prevented, in part, premium increases on disappointing macro news. By highlighting the importance of effective communication in shaping market beliefs and financial conditions, we derive some lessons from the FOMC's communication during this period. Additionally, we propose a series of design options for consideration in the forthcoming FOMC strategy review.

Media: Reuters | Central Banking | Brookings

Forecast bias across horizons: Inflation expectations and the Treasury yields, R&R at the Journal of Financial Economics [Latest version]

I show that the overreaction of the long-term yield forecasts to yield news, evidenced in recent studies, results directly from the overreaction of long-horizon inflation forecasts to inflation news. Motivated by this finding, I study how agents form inflation expectations across forecast horizons. Short-horizon survey forecasts underreact, while long-horizon forecasts overreact to inflation news. To reconcile this behavior, I propose a new expectations model whereby agents display a long-run bias by subjectively attributing part of transitory shocks to permanent shocks. I embed this bias within a yield curve model. The long-horizon inflation expectations overreaction translates into a long-term yields’ overreaction, generating excess yield sensitivity to news. The model implies a long-term bond risk premium substantially less volatile and cyclical than that implied by predictive regressions or estimates imposing full-information rational expectations.

Fed. vs. Market, inflation expectations and monetary policy risk premium

I document large and non-random differences between the professional forecasters' inflation expectations and the Fed's expectations. Fed's expectations are close to full information rational expectation (FIRE), while professional forecasters' expectations are non-FIRE. Moreover, the square of the expectational difference can significantly predict Treasury bonds' excess return, suggesting that the market is aware of the difference and requires a risk premium for it. I build a bond pricing model where agents learn about the volatility of monetary policy shocks through observed shocks. The inflation expectation difference between the Fed and the market then has a first-order risk premium effect through agents' perceived volatility. Estimation of this model suggests that this type of risk premium accounts for most of the total premium for long-term bonds, even more than the inflation risk premium, especially post-2008.

Work in Progress

Fiscal shocks and asset prices, with Anna Cieslak, Rong Wang

An anatomy of financial news sentiment analysis: Theory and evidence, with Jinge Liu

Household interest rate expectations and mortgage refinancing, with Yunbo Liu   (Draft coming soon)

Inflation risk and the cross section of asset returns, with Jianyao He, Jun Li

Money talks: How Finfluencers frame inflation expectations, with Boya Xu and Tao He