Research Feature with Dr. Zhenzhen Fan

Dr. Zhenzhen Fan is an assistant professor of finance in the Department of Economics and Finance. She obtained her PhD from the University of Amsterdam. Her research focuses on empirical and theoretical asset pricing, financial derivatives, international finance, and textual analysis.

What is the overarching focus of your research program?

My research focuses on extracting information from financial derivatives (e.g. options) and texts (e.g. News, corporate filings, conference call transcripts) that is useful in predicting asset returns, explaining stylized facts, or understanding investors’ behavior.

Briefly describe a research problem or issue you are currently investigating? What questions or challenges are you hoping to address?

One of my ongoing projects aims to understand why asset prices tend to rise on average on macro variable announcement days (e.g., FOMC, unemployment, GDP, etc). The long-standing puzzle is that returns on these days cannot be adequately accounted for by positive surprises or the resolution of uncertainty. Constructing a novel disagreement measure from index options, which gauges the dispersion of investors' beliefs regarding the underlying economy, our findings reveal that the signaling effect of macro announcements reduces investor disagreement, thereby contributing to the elevation of asset prices.

Who is the target audience?  Why is your research important to this audience? Why does it matter?

Our target audience includes policy makers. We claim that macro variables not only provide information about themselves but also serve as indicators of economic fundamentals that influence investors' expectations regarding monetary policy. This underscores the need for caution in formulating any monetary policies, as they may not achieve the intended purposes of policy makers. A recent illustration of this is the monetary tightening; despite the highest interest rate hikes in two decades, the stock market has surged by over 25%.

What is the wider social benefit of your research?

Our project helps the general public to interpret macroeconomic announcements. This project could potentially increase the financial market participation of individuals. After all, we are all at stake—our pensions, RRSP, RESP, and personal wealth all include equity investment.