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Charles Cao

Smeal Chair Professor of Finance

Department of Finance
Smeal College of Business
338 Business Building
Pennsylvania State University
University Park,  PA 16802
Tel:   (814)  865 - 7891
Fax:  (814)  865 - 3362                         

E-Mail:    qxc2@psu.edu

Website:   http://www.personal.psu.edu/qxc2/cao.html

Google Scholar: Link to Charles Cao’s papers

SSRN author page for Charles Cao

Last Updated:  10/31/2015


Charles Cao is The Smeal Chair Professor of Finance at the Department of Finance, the Smeal College of Business at the Pennsylvania State University. He received his Ph.D. in Finance from the University of Chicago's Graduate School of Business in 1993, M.S. from the University of Kentucky in 1988, and B.S. from Peking University in 1984. Professor Cao's research interests include derivative securities markets, market microstructure, credit risk, mutual funds and hedge funds. His research has been published in a wide range of academic journals, including Journal of Finance, Review of Financial Studies, Journal of Financial Economics, Journal of Financial and Quantitative Analysis, Management Science, Journal of Financial Markets, and Journal of Econometrics.

 

Professor Cao’s paper “Empirical Performance of Alternative Option Pricing Models” (co-authored with Gurdip Bakshi and Zhiwu Chen, Journal of Finance, 1997) is among the 50 top cited articles of all time from the Journal of Finance.  Another of his paper ``Price Discovery without Trading: Evidence from Nasdaq Pre-opening'' (co-authored with Eric Ghysels and Frank Hatheway, Journal of Finance, 2000) received the New York Stock Exchange Award for Best Paper on Equity Trading at the Western Finance Association Meetings in 1999. 

 

Professor Cao won competitive research grants from the BNP Paribas Hedge Fund Center (2013), the Real Estate Research Institute (2012), the Q-group (2010), the BNP Paribas Hedge Fund Center (2009), Federal Deposit Insurance Corporation-FDIC (2006-2007), and Morgan Stanley (2004).  He was also selected Fellow of FDIC Center for Financial Research in 2006.  He serves as an editor/associate editor of Pacific-Basin Finance Journal, an associate editor of Journal of Financial Markets, Review of Derivatives Research, Review of Quantitative Finance and Accounting, and Annals of Economics and Finance.  He has taught M.B.A. and Ph.D. courses at the Smeal College of Business, Penn State University.  He also served as program chair of 2005 - 2008 China International Conference in Finance , sponsored by Tsinghua University and Sloan School of Management, MIT.

 

EDUCATION

EMPLOYMENT EXPERIENCE

     Pennsylvania State University, Smeal College of Business

  • Smeal Chair Professor of Finance,  2007-Present
  • Professor of Finance,  2005-Present
  • David McKinley Professor of Business Administration, 2002-2007
  • Associate Professor of Finance (with tenure), 1999-2005
  • William Elliott Faculty Fellowship, 2001-2002
  • Assistant Professor of Finance,  1993-1999

 

  • Bankers Trust Company (New York), 1991
  • Fidelity Management & Research Company (Boston), 1991

EDITORSHIPS

  • Editor,  Pacific-Basin Finance Journal,  2009-Present
  • Associate Editor,  Journal of Financial Markets,  2000-Present
  • Associate Editor,  Review of Derivatives Research, 2007-Present
  • Associate Editor,  Review of Quantitative Finance and Accounting,  2006-Present
  • Associate Editor,  Pacific-Basin Finance Journal,  2006-2008
  • Associate Editor,  Annals of Economics and Finance, 2000-Present
  • Editorial Board Member, Review of Futures Markets, 2009-Present

HONORS, AWARDS AND GRANTS

 

·         Best Paper Award on Capital Markets, CFA Society Toronto, NFA, 2013

·         Research Grant from the BNP Paribas Hedge Fund Center at SMU, 2013

·         Research Grant from the Real Estate Research Institute, 2012

·         Research Grant from the Q group, 2010

·         Research Grant from the BNP Paribas Hedge Fund Center at SMU, 2009

·         Fellow and Competitive Research Grant from FDIC Center for Financial Research, 2006-2007

·         Best Paper Award, The Third NTU International Conference on Economics, Finance and Accounting, 2005

·         Morgan Stanley Equity Market Microstructure Research Grant, 2004

·         New York Stock Exchange Award for Best Paper in Equity Markets, WFA, 1999

·         Competitive Paper Award in Financial Institutions, FMA, 1996

·         The University of Chicago Fellowship, 1988-1991

·         Center for Research in Security Price (CRSP) Research Award, University of Chicago, 1990

·         The University of Kentucky Fellowship, 1987-1988

 

PUBLICATIONS

 

1. Return Smoothing, Liquidity Costs, and Investor Flows: Evidence from a Separate Account Platform (with Grant Farnsworth, Bing Liang and Andrew Lo), 2015, Management Science, forthcoming, (PDF file)

 

2. Real Estate Risk and Hedge Fund Returns (with Brent Ambrose and Walter D’Lima), Journal of Real Estate, Finance and Economics, 2015, forthcoming, (PDF file)

 

3. What Is the Nature of Hedge Fund Manager Skills? Evidence from the Risk Arbitrage Strategy (with Bradley Goldie, Bing Liang and Lubomir Petrasek), 2015, Journal of Financial and Quantitative Analysis, forthcoming, (PDF file)

 

4. Liquidity Risk and Institutional Ownership (with Lubomir Petrasek), Journal of Financial Markets, 21, 2014, 76-97, (PDF file)

 

5. Liquidity Risk in Stock Returns: An Event-study Perspective (with Lubomir Petrasek), Journal of Banking and Finance 45, 2014, 72-83, (PDF file)

 

6. Can Hedge Funds Time Market Liquidity?, (with Yong Chen, Bing Liang and Andrew Lo), Journal of Financial Economics 109, 2013, 493-516, (PDF file)

 

7. Do Mutual Fund Managers Time Market Liquidity?, (with Tim Simin and Ying Wang), Journal of Financial Markets 16, 2013, 279-307, (PDF file)

 

8. Pricing Credit Default Swaps with Option-Implied Volatility, (with Fan Yu and Ken Zhong), Financial Analysts Journal 67, 2011, 67-76, (PDF file)

 

9. Derivatives do Affect Mutual Fund Returns:  Evidence from the Financial Crisis of 1998, (with Eric Ghysels and Frank Hatheway),  Journal of Futures Markets 31, 2011, 629-658. (PDF file)

 

10. The Information Content of Option-Implied Volatility for Credit Default Swap Valuation, (with Fan Yu and Ken Zhong), Journal of Financial Markets 13, 2010, 321-343. (PDF file)

 

11. Can Growth Options Explain the Trend in Idiosyncratic Risk? (with Tim Simin and Jing Zhao), Review of Financial Studies 21, 2008, 2599-2633. (PDF file)

 

12. An Empirical Analysis of the Dynamic Relationship between Mutual Fund Flow and Market Return Volatility, (with Eric Chang and Ying Wang), Journal of Banking and Finance 32, 2008,  2111-2123.  (PDF file)

 

13. The Information Content of an Open Limit Order Book, (with Oliver Hanscah and Xiaoxin Wang), Journal of Futures Markets 29, 2008, 16-41. (PDF file)

 

14. Order Placement Strategies in a Pure Limit Order Book Market, (with Oliver Hansch and Xiaoxin Wang), Journal of Financial Research, Vol. XXXI, 2008, 113-140. (PDF file)

15. Determinants of S&P 500 Index Option Returns, (with Jingzhi Huang), Review of Derivatives Research, 10, 2008,  1-38. (PDF file)

16. Informational Content of Option Volume Prior to Takeovers, (with Zhiwu Chen and John Griffin), Journal of Business, 78, 2005, 1073-1109. (PDF file)

17. Is Investor Misreaction Economically Significant?  Evidence from Short- and Long-term Index Options, (with Haitiao Li and Fan Yu), Journal of Futures Markets, 25, 2005, 717-752. (PDF file)

18. Does Insider Trading Impair Market Liquidity: Evidence from IPO Lockup Expirations, (with Laura Field and Gordon Hanka), Journal of Financial and Quantitative Analysis 39, 2004, 25-46. (PDF file)

19. Share Repurchase Tender Offers and Bid-Ask Spreads (with Heejoon Ahn and Hyuk Choe), Journal of Banking and Finance 25, 2001, 445-478. (PDF file)

20. Price Discovery without Trading: Evidence from Nasdaq Pre-opening, (with Eric Ghysels and Frank Hatheway), Journal of Finance 56, 2000, 1339-1365.  (PDF file)

Winner of the New York Stock Exchange Award for Best Paper in Equity Markets,  WFA, 1999.
Nominated for a Smith Breeden distinguished paper award, AFA, 2001.

21. Do Call Prices and the Underlying Stock Always Move in the Same Direction? (with Gurdip Bakshi and  Zhiwu Chen), Review of Financial Studies 13, 2000, 549-584. (PDF file)

22. Pricing and Hedging Long-Term Options,  (with Gurdip Bakshi and Zhiwu Chen), Journal of Econometrics 94, 2000, 277-318. (PDF file)

23. Empirical Performance of Alternative Option Pricing Models (with Gurdip Bakshi and Zhiwu Chen), Journal of Finance 52, 1997, 2003-2049. (PDF file)

On the list of the 50 top cited articles of all time from the Journal of Finance.

24. Does the Specialist Matter? Differential Execution Costs and Inter-Security Subsidization on the NYSE (with Hyuk Choe and Frank Hatheway),  Journal of Finance 52,  1997, 1615-1640. (PDF file)

Winner of the Competitive Paper Award in Financial Institutions, FMA, 1996.

25. Decimalization and Competition Among Exchanges: Evidence from the Toronto Stock Exchange Cross-listed Securities, (with Heejoon Ahn and Hyuk Choe),  Journal of Financial Markets 1,  1998, 51-87.  (PDF file)

26. Evolution of Transitory Volatility over the Week (with Hyuk Choe), Annals of Economics and Finance, 1997, 49-78.

27. What is Special About the Opening: Evidence from NASDAQ (with Hyuk Choe and Frank Hatheway,  Seoul Journal of Business , 1997, 1-36.

28. Tick Size, Spread and Volume, (with Heejoon Ahn and Hyuk Choe), Journal of Financial Intermediation 5,  1996,  2-22. (PDF file)

29. Nonlinear Time Series Analysis of Stock Return Volatility, (with Ruey Tsay), Journal of Applied Econometrics 7,  1992,  165-185 . (PDF file)

30. Inequality Constraints in the Univariate GARCH Model, (with Daniel Nelson), Journal of Business & Economic Statistics 10,  1992,  229-235 . (PDF file)

 

BOOK CHAPTERS

1.  “Option Pricing and Hedging Performance under Stochastic Volatility and Stochastic Interest Rates” (with Gurdip Bakshi and Zhiwu Chen), in Handbook of Financial Econometrics and Statistics, C.F. Lee, Editor, Springer Publishing, 2014.

2.  “Option Pricing and Hedging Performance under Stochastic Volatility and Stochastic Interest Rates” (with Gurdip Bakshi and Zhiwu Chen), in Handbook of Quantitative Finance and Risk Management, C.F. Lee, Editor, Springer Publishing, 2010.

3. "Liquidity Consequence of IPO Lockup Expiration" (with Laura Field and Gordon Hanka), in Focus on Financial Institutions and Services, Nova Science Publishers, Inc., 2004 .

4. "Empirical Performance of Alternative Option Pricing Models" (with Gurdip Bakshi and Zhiwu Chen),  in Model Risk, Haymarket House, LondonU.K., 2000.

5. "Empirical Performance of Alternative Option Pricing Models" (with Gurdip Bakshi and Zhiwu Chen), in Options Markets,  Edited  by  G.  Constantinides and A.  Malliaris,  (Critical Writing in Financial Economics, Series Editor: Richard Roll),  Edward Elgar Publishing Ltd. UK, 2000.

6.  "Nonlinear Time Series Analysis of Stock Return Volatility", (with Ruey Tsay),  in Nonlinear Dynamics, Chaos and Econometrics , John Wiley & Sons, Ltd., 1993.

7.  "Decimalization and Competition Among Exchanges: Evidence from the Toronto Stock Exchange Cross-listed Securities", (with Heejoon Ahn and Hyuk Choe),  in Proceeding of NYSE Conference on Global Equity Issuance and Trading, 1997.
 

TEACHING  (Lecture notes are available on line)

  • Financial Innovations in Portfolio/Risk Management (MBA)
  • Derivative Securities (MBA and Undergraduate)
  • Theory of Financial Decisions (Ph.D.)
  • Advanced Topics on Derivative Securities (Ph.D.)
  • Investments (Undergraduate)

  Financial Innovations in Portfolio/Risk Management (Lecture notes)

  Derivative Securities (Lecture notes and homework assignments)

  Investments (Lecture notes and homework assignments)

 

RESEARCH INTEREST

  • Derivative Securities
  • Market Microstructures
  • Hedge Funds
  • Credit Risk
  • Mutual Funds

PROFESSIONAL  ACTIVITIES

Referee for the following journals:

Journal of Finance      

Review of Financial Studies

Journal of Financial and Quantitative Analysis

Journal of Business

Journal of Financial Markets

Journal of Financial Intermediation

Journal of Econometrics

Econometrica

Management Science

Journal of Business & Economic Statistics

Journal of Banking and Finance

Journal of Futures Markets

Journal of Empirical Finance

Review of Quantitative Finance and Accounting

Pacific-Basin Finance Journal

Review of Derivatives Research

Financial Management

Financial Review

International Economic Review

Journal of International Money and Finance

Canadian Journal of Economics


Service:

 

Program Committee, Conference on Financial Economics and Accounting at the University of Maryland, 2010

Graduate Council Committee, Penn State University, 2008-2010

Senate Committee on Research, Penn State University, 2008-2010

Program Chair, China International Conference in Finance sponsored by MIT’s Sloan School of Management and Tsinghua University, 2005-2008

Finance Department Recruiting Committee, Penn State University, 2007-2011

Advisor of Ph.D. Program in Finance, Smeal College of Business, Penn State University, 2001-2006

Smeal Chair Search Committee, Smeal College of Business, Penn State University, 2002-2004

William Elliott Chair Search Committee,  Smeal College of Business, Penn State University, 2000-2004

Promotion and Tenure Committee, Smeal College of Business, Penn State University, 1995-1996, and 2001-2002

Ph.D. Program Renewal Committee, Smeal College of Business, Penn State University, 2001

Program Committee, Financial Management Association, 1996, 2002, 2012, 2013

Competitive Paper Award Committee, Financial Management Association, 1996, 2014, 2015

Program Committee, New York Stock Exchange Conference on U.S. Equity Markets in Transition, 1999

University Grants Commission of Hong Kong, 1998-present 

Ph.D. Students:

Mike  Piwowar, 1996, Ph.D., Penn State University.  Employment:  Iowa State University

Heejoon Ahn, 1996, Ph.D., Penn State University.  Employment:  City University of Hong Kong

Michale Chernov, 2000,  Ph.D. , Penn State University.  Employment: Columbia University

Jennifer Juergens, 2001, Ph.D., Penn State University.  Employment:  Arizona State University

Xiaoxin Wang, 2002,  Ph.D., Penn State University.  Employment:  Southern Illinois University

Ken Zhong, 2008, Ph.D., Penn State University.  Employment:  Rutgers University

Lubomir Petrasek, 2011, Ph.D., Penn State University.  Employment:  Federal Reserve Board

Brad Goldie, 2012, Ph.D., Penn State University.  Employment:  University of Kansas

Grant Farnsworth, 2015, Ph.D., Penn State University.  Employment:  Texas Christian University


 

Link to Penn State University’s Finance Department