Purdue Profiles: Xiaoyan Zhang

August 18,2014  

Xiaoyan Zhang

Xiaoyan Zhang, professor and Duke Realty Chair of Finance in the Krannert School of Management. (Purdue University photo/Mark Simons)
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For Xiaoyan Zhang, researching the deeply complex world of finance and teaching the subject's intricacies to her students, who in turn go on to work for some of the world's best financial firms, go hand in hand.

Zhang is professor and Duke Realty Chair of Finance in the Krannert School of Management. She conducts groundbreaking and frequently cited research on portfolio management, short-selling and international finance. Additionally, for her passion for teaching and her commitment to her students, Zhang recently was named one of the 40 best business school professors in the world under age 40 by Poets & Quants, a website geared toward prospective business students.

What is the scope of your teaching duties?

I primarily teach two classes called Options and Futures (MGMT 641) and Financial Risk Management (MGMT 643). These are traditionally graduate classes, and my students are often finance-industry professionals who have returned to Purdue to pursue higher business degrees full-time. When they've finished their studies, they go on to jobs at places such as investment banks, hedge funds and private equity firms.

Given that knowledge about these topics is essential in the current financial world, this fall, we are expanding the Options and Futures class to include 10 to 15 undergraduate students, who will be taking it for honors credit. Because the class is challenging, we only invited finance major undergraduates with excellent GPAs to take the class. Starting from next year, I will be more involved in undergrad teaching, and I plan to offer a derivatives class for undergrad students only.

How might taking these classes help undergraduate students?

Options and Futures is an introductory class that teaches students the basics about simple derivative products, the values of which are “derived” from underlying assets such as stocks, bonds, commodities or currencies. Simple derivatives produced include options, futures and forwards. In this class, students learn about what those products do, how to find the right price for each of them and how to use these products to manage risk.

The bottom line is that, nowadays, if you work in a job that involves finance but you don't know anything about derivatives, your knowledge is incomplete. We think allowing undergraduates to take these classes will make them more competitive once they enter the job market.

What’s your favorite part about teaching?

I treat my students as my young friends.  I care about them and I really want to help them to learn new knowledge and move on to find good jobs. The best moments for me as a professor are when students tell me they've found their dream job, or when they tell me how my classes have helped them as a professional. It's also very rewarding when our students graduate, become successful, and return to campus as guest lecturers or to help with recruiting.

What sort of subjects do you research?

I like to do research about important questions related to the stock market.

For example, I co-wrote a paper that examined the effects of the short ban in 2008.  Specifically, in September 2008, the U.S. Securities and Exchange Commission (SEC) banned most short sales of all financial stocks for about three weeks. The idea was to stabilize the financial industry during the ongoing financial crisis. Our research found that the ban actually caused the market's overall liquidity to shrink, which was not intended.

Clearly, our research was quite relevant for regulators, and we were invited to give talks at the SEC and Board of Governors at the Federal Reserve System. This research also may be helpful if a similar ban is considered in the future.

What's a topic you're currently researching?

I'm investigating investor sentiment and why it may affect stock prices. Other studies find that investor sentiment seems to be able to predict future stock returns because human emotions or feelings are relevant to the stock market.  

My co-investigators and I are trying to understand the information content of sentiment from a different perspective. We suspect that investor sentiment is not necessarily about irrational emotions or feelings. Instead, investor sentiment could contain information about investors' rational expectations for future economic conditions. We find that investor sentiment is tightly tied to interest rates and market liquidity.

If you remove those two factors, sentiment doesn't affect stock prices at all. It's an interesting question that has a lot of implications for understanding human behaviors, which is a quite elusive topic.

Writer: Amanda Hamon Kunz, 49-61325, ahamon@purdue.edu

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