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]

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

We study the impact of the Federal Reserve’s communication on financial markets following the adoption of its revised policy framework in 2020. We propose a channel whereby market uncertainty stemming from perceived policy errors can raise risk premia. Post-framework communication introduced uncertainty about the Fed’s reaction function. Market concerns about policy mistakes amid incoming data drove up term premia, undermining easy financial conditions the Fed initially sought. While short-rate expectations were anchored by forward guidance, term premium sensitivity to inflation news increased. The subsequent shift in Fed's words and eventual actions helped stabilize premia, mitigating adverse macroeconomic news.

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