Finance Seminar（2018-32）

Topic: Equilibrium Asset Pricing with Price War Risks

Speaker: Winston (Wei) Dou, The Wharton School, University of Pennsylvania

Time: Wednesday, 19 December, 10:00-11:30

Location: Room 217, Guanghua Building 2

Abstract:

We develop a general-equilibrium asset pricing model incorporating dynamic supergames of price competition. Price war risks can rise endogenously due to declines in long-run consumption growth, because firms become effectively more impatient for cash flows and their incentives to undercut prices are stronger. The triggered price war risks amplify the initial shocks in long-run growth by narrowing profit margins and discouraging customer base development. In the industries with a higher capacity of distinctive innovation, incentives of price undercutting are less responsive to persistent growth shocks, and thus firms are more immune to price war risks and thus long-run risks. Exploiting detailed patent, product price, and brand-perception survey data, we find evidence for price war risks, which are significantly priced. Our results shed new light on how long-run risks are priced cross-sectionally through industry competition.

Introduction:

Winston (Wei) Dou’s research focus lies at the intersection of finance, macroeconomics, and econometrics, in particular the impact of economic uncertainty, the role of market imperfection and incompleteness, the interactions of international asset prices and capital flows and their roles in understanding global imbalances, and new econometric methods for analyzing structural models. His articles have appeared in the Annals of Statistics and Journal of American Statistics Association. His research has received multiple academic awards including the best paper award at Red Rock Finance Conference, MFM Dissertation Award by the Becker Friedman Institute, and MarshallBlume Prize in Financial Research by Rodney L White Center for Financial Research. He is also a recipient of outstanding teaching award in our degree granting programs.

One of his recent research projects quantitatively and empirically investigates how heightened economic uncertainty affects asset prices and investment. Intuitively speaking, economic uncertainty is the blurriness or randomness of firm-specific economic prospects. Interestingly, he finds that, in the model as in the data, uncertainty is not always fearfully evil as the economy has experienced around the late 2000s financial crisis; in fact, it can sometimes be welcomed and embraced by investors.

He joined Wharton in 2016 as an assistant professor of finance. Previously, he studied financial economics at MIT. He also received another doctoral degree in statistics from Yale University in 2010. He obtained a B.S. in mathematics and another B.S. in economics from Peking University in China.

//fnce.wharton.upenn.edu/profile/wdou/

Your participation is warmly welcomed!