Faculty & Research

Lin William Cong

Assistant Professor of Finance

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5807 South Woodlawn Avenue
Chicago, IL 60637

Lin William Cong is a professor of Finance and PhD advisor at the University of Chicago, and a faculty affiliate at the Center for East Asian Studies. His main research fields are dynamic corporate finance and information economics. His research interests include financial innovation and technology, real options, information and mechanism design, entrepreneurial finance, capital market imperfections, and China's economy and financial system. For his work, Cong has received the Finance Theory Group Best Paper Award, the Shmuel Kandel Award, and the Zephyr Prize for Best Paper in Corporate Finance, amongst other honors and fellowships. He was also a George Shultz Scholar at the Stanford Institute for Economic Policy Research and a Doctoral Fellow at the Stanford Institute for Innovation in Developing Economies. Additionally, his undergraduate research in physics and applied mathematics resulted in publications in a variety of science journals. Cong currently serves as an advisor for the Wall Street Blockchain Alliance (non-profit), and a member of multiple professional organizations such as the American Economic Association and the Econometric Society.

Cong earned a Ph.D. in finance and a MS in statistics from Stanford University, where he received the Gerald Lieberman Fellowship for outstanding contributions in research, teaching, and university service, and the Asian American Award for graduate leadership. He also holds dual degrees from Harvard University where he graduated top in Physics in 2009 with summa cum laude and Phi Beta Kappa, receiving an A.M. in physics, an A.B. in math & physics, a minor in economics, and a language citation in French.

Cong is a native of Shenyang, China. Outside his research and teaching, Cong practices Chinese Calligraphy, and enjoys reading, sports, cross fitness, guitar, as well as learning French and Japanese. Cong is also passionate about technological innovations, education in China and in the U.S., and integrating quantitative and fundamental approaches to investments in various asset classes, to which he first coined the term "Quantimental Investing" in 2014.


2016 - 2017 Course Schedule

Number Name Quarter
35125 Quantimental Investment 2016 (Fall)

2017 - 2018 Course Schedule

Number Name Quarter
35125 Quantimental Investment 2018 (Spring)

REVISION: Credit Allocation under Economic Stimulus: Evidence from China
Date Posted: Jul  19, 2017
We study credit allocation across firms in a dynamic economy with financial frictions. In normal times, growth is driven by gradual reallocation of resources from low to high productivity firms. Recessions can slow down or even reverse this process of reallocation due to financial frictions -- such as implicit government bailout -- favoring low-productivity state-controlled firms. Credit expansion further amplifies this effect. We investigate this mechanism in the context of China's economic stimulus plan introduced in response to the Great Recession, which triggered a large policy-driven credit expansion. Using private firm-level data we document the dynamics of credit misallocation and show evidence consistent with reallocation reversal: differently from the pre-stimulus years, new credit under economic stimulus was allocated relatively more towards state-owned, low-productivity firms than to privately-owned, high-productivity firms.

REVISION: Blockchain Disruption and Smart Contracts
Date Posted: Jul  16, 2017
Distributed ledger technologies such as blockchains feature decentralized consensus as well as low-cost, tamper-proof, and algorithmic executions, and consequently enlarge the contracting space and facilitate the creation of smart contracts. Meanwhile, the process of generating decentralized consensus alters the informational environment. We analyze how these quintessential features reshape industrial organization and the landscape of competition. Smart contracts can mitigate information asymmetry and deliver higher social welfare and consumer surplus through enhanced entry and competition, yet blockchain may also encourage collusion due to irreducible distribution of information. In general, blockchains can sustain market equilibria with a larger range of economic outcomes. We further characterize smart contracts used in equilibrium and discuss anti-trust policy implications, such as separating users from consensus generators, and encouraging platform competition.

REVISION: Persistent Blessings of Luck
Date Posted: Jul  01, 2017
We present a dynamic model of venture investment with endogenous fund heterogeneity and deal flows that produces performance persistence without innate skill differences. Investors work with multiple funds and use tiered contracts to manage dynamic moral hazard. Recently successful funds receive continuation contracts that encourage greater innovation, and subsequently finance innovative projects through assortative matching. Initial luck, therefore, exerts an enduring impact on performance by altering funds' future investment opportunities. The model generates implications broadly consistent with empirical findings, such as that persistently outperforming funds encourage greater innovation and attract better entrepreneurs even with worse terms. The model further predicts ``incumbent bias' in investing in funds, compensation improvement for recently successful managers, backloading across contracts, and amplification of skill differences.

REVISION: Dynamic Interventions and Informational Linkages
Date Posted: Jun  15, 2017
We model a dynamic economy with strategic complementarity among investors and endogenous government interventions that mitigate coordination failures. We establish equilibrium existence and uniqueness, and show that one intervention can affect another through altering the public-information structure. A stronger initial intervention helps subsequent interventions through increasing the likelihood of positive news, but also leads to negative conditional updates. Our results suggest optimal policy should emphasize initial interventions when coordination outcomes tend to correlate. Neglecting informational externalities of initial interventions results in over- or under-interventions, depending on intervention costs. Moreover, saving smaller funds before saving the big ones costs less and generates greater informational benefits under certain circumstances. Our paper is informative of multiple intervention programs such as those enacted during the 2008 financial crisis.

REVISION: Price of Value and Divergence Factor
Date Posted: May  22, 2017
Price of Value, measured by the ratio of market price to accounting-based valuation, subsumes the power of book-to-market and to a large extent of various quality measures in predicting the cross-section of average returns. Price-of-value strategies generate significantly higher returns than traditional value and other anomaly strategies even after common factors adjustments, and provides natural hedge against momentum strategies. A four factor model using the Market, Small-Minus-Big, Momentum, and Price-Value Divergence Factor improves over alternative factor models.

REVISION: How Public Markets Force Firm Standardization? Evidence from Chinese IPOs
Date Posted: Mar  31, 2017
To credibly commit going concern value to arm’s length financiers (and thereby reward entrepreneurs and early investors), a firm must increase disclosure, professionalize, and separate its value from specific human capital. We present evidence that the prospect of accessing public markets affects this standardization process, particularly for VC-backed firms. We examine Chinese firms on the cusp of IPOs, and make use of unique features of China’s approval-based listing process. Surprise IPO suspensions of indeterminate length permit quasi-experimental variation in the prospect of listing and plausibly exogenous variation in listing delay. Among firms approved to IPO at similar times, suspension-induced delay reduces a basket of standardization measures, including patent applications, the underwriting syndicate structure, and executive compensation and hiring. The impact of delay persists after public listing.

REVISION: Auctions of Real Options: Security Bids and Moral Hazard
Date Posted: Mar  04, 2017
Governments and corporations frequently sell assets with embedded real options to competing buyers using both cash and contingent bids. I characterize the auction and option exercise equilibrium. I find that common security bids create moral hazard and distort investments, and modify conventional knowledge about auctions. "Steepness" of securities has a non-monotone effect on the seller's revenue. Optimal security aligns investment incentives by combining down payment and non-uniform royalty payment and delays investment. Furthermore, sellers' commitment to security design affects option exercise: without pre-specified security bids, bidding and allocation are equivalent to cash auctions, and investment is socially efficient. The results are broadly consistent with empirical observations, and are informative of formal auctions such as the sales of oil leases and real estate, as well as informal auctions such as acquisitions of patents and entrepreneurial firms.

REVISION: Rise of Factor Investing: Asset Prices, Informational Efficiency, and Security Design
Date Posted: Dec  30, 2016
We model financial innovations such as Exchange-Traded Funds, smart beta products, and many index-based vehicles as composite securities that facilitate trading common factors in assets' liquidation values. Through accessing a larger basket of assets in endogenously-chosen proportions, composite securities can benefit both informed and liquidity traders and attract all factor investors with optimal designs that feature selecting liquid and representative assets. Consistent with empirical findings, introducing composite securities leads to higher price variability and co-movements, larger trading costs and synchronicity, and lower asset-specific but higher factor information in prices, especially for illiquid assets. Trading transparency, distinction between bundles and derivatives, and endogenous information acquisition also significantly affect prices and security design.