Chunyu Yang

Review of Finance Doi: https://academic.oup.com/rof/advance-article/doi/10.1093/rof/rfaf078/8454844

Management science Doi: https://pubsonline.informs.org/doi/abs/10.1287/mnsc.2024.06528

Fiscal costs of excessive debt should be assessed dynamically reflecting anticipated growth, deficits, and interest rates. Studying their joint behavior, with overlapping generations and structural deficits arising from social security, we define government debt capacity as the level that can be just sustained with current fiscal parameters unchanged all the way to an unstable steady state, in which primary deficits last forever. Below capacity, debt converges to a stable steady state. Above capacity, debt unravels. Exceeding capacity without unraveling requires higher future taxes or reduced expenditures, which is the true fiscal cost. With money, capacity increases with the target nominal interest rate if the Taylor coefficient is below one. Increasing capacity by subsidizing innovation is challenging as benefits hardly surpass costs.

Management science 64(9) p. 4157-4176 Doi: https://doi.org/10.1287/mnsc.2017.2733

We study portfolio choice with multiple stocks and capital gain taxation assuming that capital losses can only offset current or future realized capital gains. We show, through backtesting using empirical distributions, that optimal equity holdings over an extended period are significantly lower on average than benchmark holdings suggested in the literature. Using Value and Growth or Small and Large portfolios, the backtests show that allocations remain persistently under-diversified. Carry-over losses have large economic significance since they can dramatically shrink the no-trade region. Finally, the backtested economic cost of incorrectly modeling capital losses is at least 8 percent of lifetime wealth.

Journal of Computational Finance 18(1) p. 121-143 Doi: https://doi.org/10.21314/jcf.2014.279

Journal of Financial Economics 109(3) p. 775-796 Doi: https://doi.org/10.1016/j.jfineco.2013.03.016

Empirical studies of household portfolios show that young households, with little financial wealth, hold underdiversified portfolios that are concentrated in a small number of assets, a fact often attributed to behavioral biases. We present a potential rational alternative: we show that investors with little financial wealth, who receive labor income, rationally limit the number of assets they invest in when faced with financial constraints such as margin requirements and restrictions on borrowing. We provide theoretical and numerical support for our results and identify the ratio of financial wealth to labor income as a useful control variable for household portfolio studies.

Academic Seminar

American Finance Association Annual Meeting 2015

Young Scholars Nordic Finance Workshop

INFORMS Annual Meeting 2012