Yongjia (Eddy) Li, an assistant professor in the Department of Finance, co-authored the article, “Active Factor Investing: Hedge Funds vs. the Rest of Us”, which was published in the Review of Financial Economics. The paper, written by Li along with Jun Duanmu of Seattle University and Alexey Malakhov of the University of Arkansas, examines whether the success of hedge fund market timing strategies can be replicated. The authors developed a methodology for creating a portfolio of exchange-traded funds (ETFs) to capture risk factor exposures of market timing hedge funds. The paper shows that the top market timing hedge funds outperform their ETF clone peers and the superior performance cannot be replicated. The irreplicable market timing skills are more profound in certain hedge fund styles. Finally, the success of market timing strategies is driven by non‐cloneable hedge funds that possess managerial skills.
Li also co-authored “Home Price Appreciation and Residential Lending Standards” with Salman Tahsin of San Jose State University that was published in the Journal of Economics and Business. This paper explores the effect of home price appreciation on residential lending standards in the U.S. across different sample periods. The authors find that rising home prices led to higher loan acceptance rates during the housing boom. However, home price appreciation is associated with tighter lending standards post-crisis, suggesting that banks took a more cautious view of home price appreciation after the crisis. The paper shows that it was the small banks who lowered loan acceptance rates in marketing services agreements with higher home price appreciation, which caused the overall loan acceptance rates to decline in post-crisis periods.