Contact Information
Finance Department
Northwestern University
2211 Campus Drive
Evanston, IL 60208
Email: yufeng.liu@kellogg.northwestern.edu
Education:
Ph.D., Finance, Northwestern University, 2021 (anticipated)
M.S: Finance, Washington University in St. Louis, 2015
B.S: Economics, Southwestern University of Finance and Economics, China, 2013
Fields of Specialization
Contract Theory, Asset Pricing, Financial Economics under Frictions
Curriculum Vita
Job Market Paper
“Optimal Contracts with Ambiguity and Risk Taking”
This paper studies the optimal contracting problem where investors (principal) have ambiguous beliefs about the cash flows and the managers (agent) can pursue unobservable risk-taking strategies. Pay-performance-sensitivity is shown to increase when investors are more ambiguity averse or when the agency friction is less severe. Surprisingly, with agency frictions, more ambiguity-averse investors implement riskier investment strategies. This happens because these investors write contracts with high-powered incentives to transfer ambiguity risk to the agent. Such high incentives encourage risk-taking strategies that temporarily boost short-term performance. Our model can thus help explain why managers in small firms and in firms whose business nature is complex receive compensations that are more sensitive to performance. In addition, as a result of the high-powered incentives, ambiguity aversion can decrease the impact of the agency frictions.
Other Working Papers
“Optimal Life cycle Consumption and Investment with Long Term Disability Risk and Consumption Ratcheting” joint with Hong Liu and Jing Xu
Long term disability poses significant unemployment risk and adversely affects the living standard. We propose a life cycle consumption and investment model in the presence of long-term disability risk for an investor who needs to maintain a living standard that is at least a certain fraction of the historically highest level before and after retirement. There exists an optimal wealth-to-historically-highest-consumption threshold ratio above which the investor increases consumption beyond the historically highest level. The long-term disability risk significantly reduces consumption and investment. The inability to borrow against future income magnifies the impact of long-term disability and further decreases consumption and investment. Our model generates hump shaped life cycle consumption and investment patterns before retirement that are consistent with empirical evidence and shows the importance of the access to long term disability insurance. The traditional financial advice that one should invest less as one ages is only partially correct.
“Optimal Investment with Fund Flow Risk”
This paper studies optimal investment problem with stochastic fund inflow in a continuous-time setting. In addition to security return risk, fund manager faces flow risk as assets suddenly flow in/out. Close-form solution shows that fund manager holds a portfolio that hedges against fund flow risk in addition to standard Merton portfolio allocation and the hedging intensity is significantly increased by more frequent fund in/out flows. Investment strategies and welfare level are largely affected by microstructure frictions including fund flow smoothness, observability, and market closure.
Teaching Assistant
Macro Policy and Global Capital Markets (2019)
Accelerated Corporate Finance (2018)
Principles of Finance (2016)
Data Analysis, Options and Futures, Derivative Securities (2014)
References
Prof. Michael Fishman (Committee Chair)
Prof. Konstantin Milbradt
Prof. Hong Liu