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 research interests include real options, entrepreneurial finance, market efficiency, statistical learning, financial intermediation and innovation, and China's economy and financial markets. For his doctoral studies, 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 PhD Fellow at the Stanford Institute for Innovation in Developing Economies, with research grants from both institutes. Additionally, his undergraduate research in physics and applied mathematics resulted in publications in a variety of science journals. Cong currently referees for The American Economic Review, Review of Financial Studies, Management Science, Journal of Economic Theory, and Journal of Political Economy. He also serves as a member of the American Economic Association, European Finance Association, the Econometric Society, and the Society of Financial Studies.

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 education in China and in the U.S., and integrating quantitative and fundamental approaches to investments in various asset classes, to which he coined the term "Quantimental Investing."


2016 - 2017 Course Schedule

Number Name Quarter
35125 Quantimental Investment 2016 (Fall)

REVISION: Intervention Policy in a Dynamic Environment: Coordination and Learning
Date Posted: May  25, 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 public information structure. A stronger initial intervention helps subsequent interventions through increasing likelihood of positive news, but also leads to negative conditional updates. Our results suggest that 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 under certain circumstances costs less and generates greater informational benefits. Our paper is informative of multiple intervention programs such as those 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: Persistent Blessings of Luck: Endogenous Heterogeneity and Deal Flows in Venture Investment
Date Posted: May  11, 2017
Performance persistence in the private equity industry, especially in venture funds, is often interpreted as evidence of differential abilities among managers. We present a dynamic model of delegated investments that produces performance persistence and predictability without skill heterogeneity. Risk-tolerant capital and innovative projects exhibit strong complementarity, and endogenously flow to recently successful funds through incentive contracts with continuation value and assortative matching. Initial luck therefore has an enduring impact on fund performance and managerial compensation, and investors benefit from working with multiple funds with tiered contracts that affect dynamic moral hazard. More generally, we demonstrate how luck induces or amplifies fund heterogeneity that in turn leads to differential investment opportunities performance. Consistent with empirical findings, our model predicts that venture funds that persistently outperform encourage greater innovation ...

REVISION: Credit Allocation under Economic Stimulus: Evidence from China
Date Posted: May  05, 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: 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.

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