PhD Candidate in Finance
My name is Xu Lu and I am a Ph.D. candidate in Finance at Stanford GSB. This summer, I will join the University of Washington (Seattle) as an assistant professor of finance.
My research interests lie in the areas of asset pricing, macro-finance, financial intermediation and household finance. Prior to Stanford, I received my bachelor degrees in Economics and Finance, and Mathematics from Tsinghua University in 2017.
How does monetary policy affect the stock market? We propose a rebalancing channel whereby institutional rebalancing demand across asset classes contributes to the puzzlingly large stock market reaction to monetary shocks (Bernanke Kuttner 2005). We document that stocks with greater ownership by institutions prone to rebalancing respond more to monetary shocks. In response to a 1% surprise short rate hike, a stock with 10% higher ownership by "rebalancers" loses 37bp more in the 30-minute window around FOMC announcements, controlling for stock characteristics. We develop a quantity-based model where rebalancers sell their stock holdings after monetary tightening, leading to price changes. The model links the implied aggregate stock market reaction due to rebalancing flows to the cross-sectional price differentials we identify via stock demand elasticities. Using estimates of these elasticities from the literature, we show that rebalancing demand accounts for about one-third to two-thirds of the stock market reaction to FOMC announcements unexplained by changes in future cash flows or the risk-free rate.
The Political Economy of China's Housing Boom
(with Adam Zhang)
This paper provides causal evidence that the Chinese Communist Party's cadre promotion system contributed to China's real estate boom between 2003 and 2015. We first show that promotions of city-level communist leaders to higher ranks were largely based on city GDP performances. We then identify exogenous shocks to their promotion chances, caused by new social tie establishments between city-level officials and their superiors, using provincial party leader changes initiated by the central government. An incumbent city leader who shared the same hometown with a newly appointed provincial leader was 50% more likely to be promoted than average, regardless of the city's GDP performance. Cities where leaders had hometown connections experienced 40% higher supplies of residential land, while industrial and commercial land supplies both dropped by 30% and total land supplies were not affected. House price growth rates were also 50% lower than average in such cities.
Does Main Street Care About Wall Street? Evidence from Post-IPO Spendings
Do consumers respond to stock market fluctuations? This paper provides new evidence on how marginal propensity to consume changes after financial windfalls. Employees anticipate and accummulate large unrealised capital gains around initial public offerings. I show that employees with high payrolls at pre-IPO firms experience large consumption responses after IPOs, and the increase in consumption is mostly in durables.
I am a cyclist and runner. I adopted a career change dog during the pandemic, and changed his career to a marathoner :)