Charles Cao
Professor of Finance of Finance
Charles Cao is the Smeal Chair Professor of Finance in the Department of Finance at the Smeal College of Business, Pennsylvania State University. He received his Ph.D. in Finance from the University of Chicago Booth School of Business in 1993, his M.S. from the University of Kentucky in 1988, and his B.S. from Peking University in 1984.
Expertise
Professor Cao's research interests include FinTech, cryptocurrencies, hedge funds, mutual funds, derivative securities markets, and market microstructure. His work has been published in a broad range of leading academic journals, including the 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. His 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 in the Journal of Finance. Another of his articles “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 in 1999. More recently, his paper “Hedge Funds and Stock Price Formation” (co-authored with Yong Chen, William Goetzmann and Bing Liang, Financial Analysts Journal, 2018) received the Graham and Dodd Award of Excellence in 2018. Professor Cao won competitive research grants from the BNP Paribas Hedge Fund Center (2009 and 2013), the CFA Society (2013), the Real Estate Research Institute (2012), the Q-group (2010), the Federal Deposit Insurance Corporation-FDIC (2006-2007), and Morgan Stanley (2004). He was also elected Fellow of FDIC Center for Financial Research in 2006. He currently serves (or has served) as an editor/associate editor for several journals, including Pacific-Basin Finance Journal, Journal of Financial Markets, Review of Derivatives Research, Review of Quantitative Finance and Accounting, and Annals of Economics and Finance. He has taught courses at the undergraduate, M.B.A. and Ph.D. levels at the Smeal College of Business, Penn State University.
Education
Ph D in Finance, University of Chicago, Chicago, IL, 1993-01-01 MS in Statistics, The University of Kentucky, Lexington, KY, 1988-01-01 BS in Mathematics, Peking University, Beijing, China, 1984-01-01
Courses Taught
FIN 410 – Derivative Markets
Functions, techniques, and impact of speculation conducted through forward markets; the nature of speculative transactions, pricing, and methods of trading.
FIN 585 – Financial Innovation and Portfolio Risk Management
Introduction to fundamental derivatives, standard valuation models, and practical applications to portfolio management; recognition, measurement, and management of portfolio risk.
FIN 596
Creative projects, including nonthesis research, which are supervised on an individual basis and which fall outside the scope of formal courses.
FIN 596 – Individual Studies
Creative projects, including nonthesis research, which are supervised on an individual basis and which fall outside the scope of formal courses.
FIN 597 – Special Topics
Formal courses given on a topical or special interest subject which may be offered infrequently; several different topics may be taught in one year or term.
FIN 597A – Asset pricing seminar (A)
This course introduces the latest developments in empirical work on the asset pricing side of financial economics. We discuss a number of empirical results and puzzles in asset pricing, including cross-section of expected returns, value and momentum effects, performance persistency of mutual funds, hedge funds’ risk and return, the information content of security markets, and asset pricing with liquidity risk. While the empirical evidence is guided by existing theory, it also provides a roadmap for future theoretical research.
FIN 597A – Asset Pricing Theory (A)
This course develops the theory of financial markets; topics include intertemporal portfolio choice, asset and option pricing models and determinants of cross-sectional stock returns.
FIN 601 – Ph D Dis Full-Time
NO DESCRIPTION.
FIN 601 – PH.D. DISSERTATION FULL-TIME
NO DESCRIPTION.
Selected Publications
Cao Q. "Information Choice, Uncertainty, and Expected Returns (with David Gempesaw and Tim Simin), Review of Financial Studies, 34, 2021, p5977-6031" 2021-10-01
Cao Q. "The Economics of Hedge Fund Startups: Theory and Empirical Evidence (with Grant Farnsworth and Hong Zhang), Journal of Finance, 76, 2021, p1427-1469" 2021-02-01
Cao Q. "Assessing Models of Individual Equity Option Prices (with Gurdip Bakshi and Ken Zhong), Review of Quantitative Finance and Accounting, 48, 2021, p1-28" 2021-01-01
Cao Q. "Predicting the equity premium with the implied volatility spread (with Tim Simin and Han Xiao), Journal of Financial Markets, 2020, 1, 1-17" 2020-11-01
Cao Q. "Index Membership and Small Firm Financing (with Matthew Gustafson and Raisa Velthuis), Management Science, 8, 2019, 4156-4178" 2018-12-30
Cao Q. "Hedge Funds and Stock Price Formation (with Yong Chen, William Goetzmann and Bing Liang), Financial Analysts Journal, 3, 2018, 54-68." 2018-12-20
Cao Q. "The Decline of Informed Trading in the Equity and Options Markets (with David Gempesaw and Tim Simin), Journal of Alternative Investments,2018, p16-29." 2018-01-10
Cao Q. "Hedge Fund Holdings and Stock Market Efficiency (with Bing Liang, Andrew Lo and Lubomir Petrasek), Review of Asset Pricing Studies, 8, 2017, p77-116" 2017-01-01
Cao Q. "Style Drift: Evidence from Small-Cap Mutual Funds (with Peter Iliev, and Raisa Velthuis), Journal of Banking and Finance, 78, 2017, p42-57" 2017-01-01
Cao Q. "Real Estate Risk and Hedge Fund Returns (with Brent Ambrose and Walter D’Lima), Journal of Real Estate, Finance and Economics, 52, 2016, 197-225" 2016-01-01
Cao Q. "Return Smoothing, Liquidity Costs, and Investor Flows: Evidence from a Separate Account Platform (with Grant Farnsworth, Bing Liang and Andrew Lo), Management Science, 63, 2017, p2233-2250" 2016-01-01
Cao Q. "What Is the Nature of Hedge Fund Manager Skills? Evidence from the Risk Arbitrage Strategy (with Bradley Goldie, Bing Liang and Lubomir Petrasek), Journal of Financial and Quantitative Analys" 2016-01-01
Cao Q. "“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" 2014-01-01
Cao Q. "Liquidity Risk and Institutional Ownership (with Lubomir Petrasek), Journal of Financial Markets, 21, 2014, 76-97" 2014-01-01
Cao Q. "Liquidity Risk in Stock Returns: An Event-study Perspective (with Lubomir Petrasek), Journal of Banking and Finance 45, 2014, 72-83" 2014-01-01
Cao Q. "Can Hedge Funds Time Market Liquidity? (with Yong Chen, Bing Liang and Andrew Lo), Journal of Financial Economics 109, 2013, 493-516" 2013-01-01
Cao Q. "Do Mutual Fund Managers Time Market Liquidity?, (with Tim Simin and Ying Wang), Journal of Financial Markets 16, 2013, 279-307" 2013-01-01
Cao Q. "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" 2011-01-01
Cao Q. "Pricing Credit Default Swaps with Option-Implied Volatility, (with Fan Yu and Ken Zhong), Financial Analyst Journal 67, 2011, 67-76." 2011-01-01
Cao Q. "“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" 2010-01-01
Cao Q. "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" 2010-01-01
Cao Q. "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" 2008-01-01
Cao Q. "Can Growth Options Explain the Trend in Idiosyncratic Risk? (with Tim Simin and Jing Zhao), Review of Financial Studies 21, 2008，2599-2633" 2008-01-01
Cao Q. "Determinants of S&P 500 Index Option Returns, (with Jingzhi Huang), Review of Derivatives Research, 10, 2008，1-38." 2008-01-01
Cao Q. "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" 2008-01-01
Cao Q. "The Information Content of an Open Limit Order Book, (with Oliver Hanscah and Xiaoxin Wang), Journal of Futures Markets 29, 2008，16-41" 2008-01-01
Cao Q. "Informational Content of Option Volume Prior to Takeovers, (with Zhiwu Chen and John Griffin), Journal of Business, 78, 2005，1073-1109" 2005-01-01
Cao Q. "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" 2005-01-01
Cao Q. "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." 2004-01-01
Cao Q. "Liquidity Consequence of IPO Lockup Expiration" (with Laura Field and Gordon Hanka), in Focus on Financial Institutions and Services, Nova Science Publishers, Inc., 2004." 2004-01-01
Cao Q. "Share Repurchase Tender Offers and Bid-Ask Spreads (with Heejoon Ahn and Hyuk Choe), Journal of Banking and Finance 25, 2001，445-478" 2001-01-01
Cao Q. ""Empirical Performance of Alternative Option Pricing Models" (with Gurdip Bakshi and Zhiwu Chen), in Model Risk, Haymarket House, London, U.K., 2000." 2000-01-01
Cao Q. "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." 2000-01-01
Cao Q. "Price Discovery without Trading: Evidence from Nasdaq Pre-opening, (with Eric Ghysels and Frank Hatheway), Journal of Finance 56, 2000，1339-1365" 2000-01-01
Cao Q. "Pricing and Hedging Long-Term Options, (with Gurdip Bakshi and Zhiwu Chen), Journal of Econometrics 94, 2000，277-318" 2000-01-01
Cao Q. "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" 1998-01-01
Cao Q. "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" 1997-01-01
Cao Q. "Empirical Performance of Alternative Option Pricing Models (with Gurdip Bakshi and Zhiwu Chen), Journal of Finance 52, 1997，2003-2049" 1997-01-01
Cao Q. "Evolution of Transitory Volatility over the Week (with Hyuk Choe), Annals of Economics and Finance, 1997，49-78." 1997-01-01
Cao Q. "What is Special About the Opening: Evidence from NASDAQ (with Hyuk Choe and Frank Hatheway, Seoul Journal of Business, 1997，1-36." 1997-01-01
Cao Q. "Tick Size, Spread and Volume, (with Heejoon Ahn and Hyuk Choe), Journal of Financial Intermediation 5, 1996，2-22" 1996-01-01
Cao Q. ""Nonlinear Time Series Analysis of Stock Return Volatility", (with Ruey Tsay), in Nonlinear Dynamics, Chaos and Econometrics, John Wiley & Sons, Ltd., 1993." 1993-01-01
Cao Q. "Inequality Constraints in the Univariate GARCH Model, (with Daniel Nelson), Journal of Business & Economic Statistics 10, 1992，229-235" 1992-01-01
Cao Q. "Nonlinear Time Series Analysis of Stock Return Volatility, (with Ruey Tsay), Journal of Applied Econometrics 7, 1992，165-185" 1992-01-01
Cao Q. "“Predicting the equity premium with the implied volatility spread” (with Tim Simin and Han Xiao) in Handbook of Investment Analysis, Portfolio Management, and Financial Derivatives, Published"