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
REVISION: Credit Allocation under Economic Stimulus: Evidence from China
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: Intervention Policy in a Dynamic Environment: Coordination and Learning
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.
New: Persistent Blessings of Luck: Capital and Deal Flows in Venture Investment
Persistence in fund performance in the private equity industry, especially venture funds, is often interpreted as evidence of differential abilities among the managers. We present a dynamic model of delegated investments that produces performance persistence and predictability without investment skill heterogeneity. Capital and quality projects exhibit strong complementarity, and endogenously flow to recently successful funds due to incentivization of managerial effort 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. We also demonstrate how capital and deal flows amplify small skill differentials. Consistent with empirical findings, our model also predicts that venture funds that persistently outperform encourage greater innovation and attract better entrepreneurial projects using seemingly less favorable ...
New: Does High-Growth Entrepreneurship Need Public Markets? Evidence from Chinese IPOs
Beyond financing firm operations, public markets provide liquidity for the entrepreneur and early investors, rewarding them for standardizing (or “professionalizing”) the firm. We explore how access to public markets affects firm standardization and venture capital (VC) investment. We exploit unique features of China's approval-based listing process and occasional IPO suspensions. Among firms approved to IPO at similar times, the surprise suspensions of indeterminate length provide plausibly exogenous variation in listing delay and thus access to public markets. We find that suspension-induced delay has strong negative effects on patent applications. Firms funded by domestic VCs are more affected than those not backed by VCs or backed by foreign VCs. Delay also leads to short-term increases in CEO pay. The effects do not seem to reflect a capital supply shock, as delay does not affect contemporaneous investment or leverage. We also find evidence that the suspensions have had a ...
REVISION: Rise of Factor Investing: Asset Prices, Informational Efficiency, and Security Design
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.
REVISION: Auctions of Real Options
Governments and corporations frequently sell assets with embedded real options to competing buyers using security bids. Examples include the sales of natural resources, real estate, patents and licenses, and start-up companies. This paper models these auctions of real options, incorporating both endogenous auction timing and post-auction option exercise. I characterize the ways common security bids distort investments and strategic auction timing affects auction initiation, security ranking, equilibrium bidding, and investment. Revenue-maximizing sellers inefficiently delay auctions, including optimal auctions which align investment incentives using a combination of down payment and royalty payment. When sellers do not restrict security design, bidding and allocation outcomes are equivalent to cash auctions. Finally, informed bidders always initiate the auctions when they could. The results are broadly consistent with empirical observations and underscore that auction timing and ...