Faculty & Research

Lin William Cong

Assistant Professor of Finance

Phone :
1-773-834-1436
Address :
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.

 

2017 - 2018 Course Schedule

Number Name Quarter
35125 Quantimental Investment 2018 (Spring)
35600 Seminar: Finance 2017 (Fall)

REVISION: Tokenomics: Dynamic Adoption and Valuation
Date Posted: May  17, 2018
We provide a dynamic asset-pricing model of (crypto-) tokens on (blockchain-based) platforms. Tokens intermediate peer-to-peer transactions, and their trading creates inter-temporal complementarity among users and generates a feedback loop between token valuation and adoption. Consequently, tokens capitalize future platform growth, accelerate adoption, and reduce user-base volatility. Equilibrium token price increases non-linearly in platform productivity, user heterogeneity, and endogenous network size. Consistent with evidence, the model produces explosive growth of user base after an initial period of dormant adoption, accompanied by a run-up of token price volatility.

REVISION: Price of Value and the Divergence Factor
Date Posted: May  09, 2018
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: Listing Delays and Innovation: Evidence from Chinese IPOs
Date Posted: Apr  30, 2018
Regulators have suspended IPOs in China on numerous occasions, exposing firms already approved to IPO to indeterminate listing delay. These disruptions curtail firms’ timely access to risk capital and increase uncertainty. After firms ultimately list, suspension-induced delay substantially reduces their innovation activity, measured using patent quantity and quality. These effects begin during the delay and endure for years after listing, while impacts on other firm outcomes are short-lived. The corporate innovation process, like an individual’s accumulation of human capital, has a cumulative dimension. Interrupting it can be detrimental in the long term, highlighting the importance of well-functioning IPO markets.

REVISION: Decentralized Mining in Centralized Pools
Date Posted: Apr  25, 2018
A blockchain's well-functioning relies on proper incentives under adequate decentralization. However decentralization cannot be taken for granted, as many presumably distributed cryptocurrency-mining activities have witnessed the rise of mining pools over time. We study the centralization and decentralization forces in the creation and competition of mining pools: risk-sharing benefits attract independent miners to pools, leading to centralization; however, pool concentration can be moderated through cross-pool diversification and endogenous pool fees. In particular, we show that larger pools charge higher fees, leading to disproportionally less miners to join and thus a slower pool size growth. Empirical evidence from Bitcoin mining supports our model predictions.

REVISION: Blockchain Disruption and Smart Contracts
Date Posted: Apr  21, 2018
Blockchain technology provides decentralized consensus and potentially enlarges the contracting space using smart contracts with tamper-proofness and algorithmic executions. Meanwhile, generating decentralized consensus entails distributing information which necessarily alters the informational environment. We analyze how decentralization affects consensus effectiveness, and how the quintessential features of blockchain reshape industrial organization and the landscape of competition. Smart contracts can mitigate informational asymmetry and improve welfare and consumer surplus through enhanced entry and competition, yet the irreducible distribution of information during consensus generation may encourage greater collusion. In general, blockchains can sustain market equilibria with a wider range of economic outcomes. We further discuss anti-trust policy implications targeted to blockchain applications, such as separating consensus record-keepers from users.

REVISION: Persistent Blessings of Luck
Date Posted: Apr  17, 2018
Persistent fund performance in venture capital is often interpreted as evidence of differential abilities among managers. We present a dynamic model of venture investment with endogenous fund heterogeneity and deal flows that produces performance persistence without innate skill difference. Investors work with multiple funds and use tiered contracts to manage moral hazard dynamically. 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 managers' 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, mean-reversion of long-term performance, ...

REVISION: Insider Investor and Information
Date Posted: Apr  17, 2018
Relationship financing of innovative projects, as is common in bank lending and venture capital, features incumbent financiers' observing interim information before deciding on continued financing. Entrepreneurs' endogenous experimentation reduces the insider investor's information monopoly rent, but the moral hazard of information production in such persuasion games reduces the incentives for initial investment. Insiders' independent information and competition mitigate the hold-up problem and, consistent with empirical observations, have non-monotone effects on relationship formation. Because experimentation only alters the informational environment and not the underlying project cash flows, optimal contracts independent of investor sophistication and entrepreneur's private benefit achieves the first best: the entrepreneur issues warrants in the initial round for purchasing convertible securities later, then raises the remaining investment by selling residual claims to competitive ...

REVISION: Up-Cascaded Wisdom of the Crowd
Date Posted: Apr  16, 2018
Economic activities such as crowdfunding often involve sequential interactions, observational learning, and successes contingent on achieving certain thresholds of support. To analyze them, we incorporate an all-or-nothing (AoN) feature in a classical model of information cascade. Relative to standard settings, we find that an AoN target effectively delegates early supporters' downside protection to a later "gate-keeper", and leads to uni-directional cascades and prevents agents' ignoring private signals and imitating preceding agents' rejections. Consequently, information aggregation improves, and issuance becomes less under-priced, even when agents have the options to wait. More generally, endogenous AoN targets improve the financing efficiency of costly projects and the harnessing of the wisdom of the crowd under information cascades, and approaches the first best as the crowd grows larger.

REVISION: Credit Allocation under Economic Stimulus: Evidence from China
Date Posted: Apr  12, 2018
We study credit allocation across firms and its real effects during China's economic stimulus plan of 2009-2010. We match confidential loan-level data from the 19 largest Chinese banks with firm-level data on manufacturing firms. We find that the stimulus-driven credit expansion significantly affected firm borrowing, investment, and employment. It disproportionately favored state-owned firms and firms with lower marginal product of capital, reversing the process of capital reallocation towards private firms that characterized China high growth before 2008. We rationalize these findings in a dynamic model with heterogeneous firms and financial frictions.

REVISION: Credit Allocation Under Economic Stimulus: Evidence from China
Date Posted: Apr  05, 2018
We study credit allocation across firms and its real effects during China's economic stimulus plan of 2009-2010. We match confidential loan-level data from the 19 largest Chinese banks with firm-level data on manufacturing firms. We find that the stimulus-driven credit expansion disproportionately favored state-owned firms and firms with lower marginal product of capital, reversing the process of capital reallocation towards private firms that characterized China high growth before 2008. We rationalize these findings in a dynamic model 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 due to implicit government bailout favoring state-connected firms. Credit expansion further amplifies this effect.

REVISION: Auctions of Real Options
Date Posted: Feb  06, 2018
Governments and corporations frequently auction assets with embedded real options using both cash and contingent bids. I characterize equilibrium bidding and option exercise strategies, and find that the moral hazard associated with the uncontractible investment timing inefficiently and asymmetrically accelerates or delays investments. I use a mechanism design approach instead of security "steepness" to rank securities and derive the optimal security. Furthermore, without sellers' commitment to the security design, all auction equilibria are equivalent to cash auctions, and investments are socially efficient. The results are broadly consistent with empirical observations, for example in the sales of oil leases.

REVISION: Insider Investor and Information
Date Posted: Jan  29, 2018
Relationship financing of innovative projects, as is common in bank lending and venture capital, features incumbent financiers' observing interim information before deciding on continued financing. Entrepreneurs' endogenous experimentation reduces the insider investor's information monopoly rent, but the moral hazard of information production in such persuasion games reduces the incentives for initial investment. Insiders' independent information and competition mitigate the hold-up problem and, consistent with empirical observations, have non-monotone effects on relationship formation. Because experimentation only alters the informational environment and not the underlying project cash flows, optimal contracts independent of investor sophistication and entrepreneur's private benefit achieves the first best: the entrepreneur issues warrants in the initial round for purchasing convertible securities later, then raises the remaining investment by selling residual claims to competitive ...

REVISION: Dynamic Interventions and Informational Linkages
Date Posted: Nov  26, 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 disproportionally more can generates greater informational benefits at smaller costs. Our paper is thus informative of the interaction of multiple intervention programs such as those enacted during the 2008 financial crisis.

REVISION: Timing of Auctions of Real Options
Date Posted: Oct  09, 2017
This paper endogenizes auction timing and initiation in auctions of real options. Revenue-maximizing timing deviates from welfare-maximizing or bidders' preferred timing because the information rent the seller pays makes her face a "virtual strike price' higher than the option exercise cost. The irreversible nature of time endows a seller potential control over the winning bidder's eventual option exercise. As long as she does not strongly prefer early exercise, she inefficiently delays the auction; otherwise auction timing is efficient, but option exercises are always inefficiently delayed. When the seller lacks commitment to auction timing and offer finality, bidders always initiate in equilibrium regardless of the divergence in their and the seller's preferred option exercise. The model also predicts that bidder initiation corresponds to faster option exercise, consistent with empirical evidence from the selling and drilling of oil and gas tracts.