AboutDr Huamao Wang is a Lecturer in Finance at the University of Kent after achieving his PhD degree. He obtained his PhD at the Centre for Advanced Studies in Finance, the University of Leeds, winning the Tom Lupton prize. Dr Wang published papers in journals including European Journal of Operational Research, European Journal of Finance etc. He acted as a referee for European Journal of Operational Research, Journal of Banking & Finance, European Journal of Finance, and Quantitative Finance etc.
Research InterestsTheoretical and empirical researches in Corporate Finance, Asset Pricing, Financial Economics, General Equilibrium, Asset Allocation, and Portfolio Choice.
Dr Wang currently focuses on two research topics. One studies the effects of financial intermediaries and monetary policy on cross-sectional firms' risk premia and decisions. Another examines the interaction between financial intermediaries and firms on corporate finance and asset pricing in the cross section under behaviour bias.
TeachingDr Huamao Wang has the experiences of the module convener for several modules including Derivatives, Futures and Options Markets, Mathematics of Finance, and Financial Statements Analysis for the programmes of MSc in Finance and BA in Accounting and Finance.
Dr Huamao Wang has a couple of PhD student vacancies. Candidates who have/will achieve a Master degree with merit or an equivalent level in Finance related backgrounds, e.g., Investment/Market/Banking/Financial-Management/Financial-Economics are welcome to contact Dr Wang for studying the programme of 'PhD in Finance' supervised by Dr Wang.
Potential research topics for the PhD students includes but are not limited to empirical and/or theoretical researches in Corporate Finance, Asset Pricing, Financial Markets (stocks, bonds, options, volatilities etc), Risk Analysis and Investment, Financial Intermediaries (banks, funds, venture capital etc), Portfolio Choice, and emerging topics in Fintech (AI, Big Data, Blockchain, and Cryptocurrencies).
The project focuses on theoretical and empirical researches in financial market dynamics. We investigate the impact of Macroeconomic conditions and financial market imperfections on endogenous levered equity and bond risk premia. We incorporate models in General Equilibrium, Dynamic Corporate Finance, Asset Pricing and Portfolio Choice etc. into a unified theoretical framework. Using this framework, we examine the interplay between corporate decisions and asset returns for a cross-section of firms. The results reveal the dynamics of asset prices depending on time-varying economy states and uncertainty.
- Omar Al-Bataineh: Dividend Policy under Corporate Governance: Evidence from the UK
- Jun Yang - Strategic Portfolio Management and Risk Modelling
Also view these in the Kent Academic Repository
Wang, H., Yang, J. and Yao, Y. (2019). Dynamics and Performance of Decentralized Portfolios with Size-Induced Fund Flows. Quantitative Finance [Online] 19:885-898. Available at: https://doi.org/10.1080/14697688.2018.1550262.We examine the implications of fund sizes for portfolio dynamics and performance within a decentralized structure, where the chief investment officer optimally allocates capital to two fund managers who invest in multiple assets within their own asset classes. The managers experience fund inflows/outflows depending on not only their investment performances but also their fund sizes that are mainly driven by their optimal portfolios. We characterize these practical features through a two-layer dynamic optimization model where the managers maximize their size-dependent compensations. We solve the highly path-dependent optimization problem using a simulation-projection method with a multidimensional grid search and policy iteration. Our analysis provides new interpretations on the controversial scale effects on fund performance, along with insights into portfolio dynamics and management fees for bond funds and stock funds under different fund ages.
Wang, H., Xu, Q. and Yang, J. (2017). Investment timing and optimal capital structure under liquidity risk. European Journal of Finance [Online]:1-23. Available at: http://dx.doi.org/10.1080/1351847X.2017.1356342.Deterioration in debt market liquidity reduces debt values and affects firmsâ decisions. Considering such risk, we develop an investment timing model and obtain analytic solutions. We carry out a comprehensive analysis in optimal financing, default and investment strategies, and stockholderbondholder conflicts. Our model explains stylized facts and replicates empirical findings in credit spreads. We obtain six new insights for decision makers. We propose a ânew trade-off theoryâ for optimal capital structure, a new tax effect, and new explanations of âdebt conservatism puzzleâ and âzero-leverage puzzleâ. Failure in recognizing liquidity risk results in substantially over-leveraging, early bankruptcy or investment, overpriced options, and undervalued coupons and credit spreads. In addition, agency costs are surprisingly small for a high liquidity risk or a low project risk. Interestingly, the risk shifting incentive and debt overhang problem decrease with liquidity risk under moderate tax rates while they increase under high tax rates.
Luo, P., Wang, H. and Yang, Z. (2015). Investment and financing for SMEs with a partial guarantee and jump risk. European Journal of Operational Research [Online] 249:1161-1168. Available at: http://dx.doi.org/10.1016/j.ejor.2015.09.032.We consider a small- and medium-sized enterprise (SME) with a funding gap intending to invest in a project, of which the cash flow follows a double exponential jump-diffusion process. In contrast to traditional corporate finance theory, we assume the SME is unable to get a loan directly from a bank and hence it enters into a partial guarantee agreement with an insurer and a lender. Utilizing a real options approach, we develop an investment and financing model with a partial guarantee. We explicitly derive the pricing and timing of the option to invest. We find that if the funding gap rises, the option value decreases but its investment threshold first declines and then increases. The larger the guarantee level, the lower the option value and the later the investment. The optimal coupon rate decreases with project risk and a growth of the guarantee level can effectively reduce agency conflicts.
Wang, H., Yang, Z. and Zhang, H. (2015). Entrepreneurial Finance with Equity-for-Guarantee Swap and Idiosyncratic Risk. European Journal of Operational Research (ABS 4) 241:863â871.We consider a risk-averse entrepreneur who invests in a project with idiosyncratic risk. In contrast to the literature, we assume the entrepreneur is unable to get a loan from a bank directly because of the low creditability of the entrepreneur and so an innovative financial contract, named equity-for-guarantee swap, is signed among a bank, an insurer, and the entrepreneur. It is shown that the new swap leads to higher leverage, which brings more diversification and tax benefits. The new swap not only solves the problems of financing constraints, but also significantly improves the welfare level of the entrepreneur. The growth of welfare level increases dramatically with risk aversion index and the volatility of idiosyncratic risk.
Palczewski, J. et al. (2015). Dynamic portfolio optimization with transaction costs and state-dependent drift. European Journal of Operational Research (ABS 4) 243:921-931.The problem of dynamic portfolio choice with transaction costs is often addressed by constructing a Markov Chain approximation of the continuous time price processes. Using this approximation, we present an efficient numerical method to determine optimal portfolio strategies under time- and state-dependent drift and proportional transaction costs. This scenario arises when investors have behavioral biases or the actual drift is unknown and needs to be estimated. Our numerical method solves dynamic optimal portfolio problems with an exponential utility function for time-horizons of up to 40 years. It is applied to measure the value of information and the loss from transaction costs using the indifference principle.
Song, D., Wang, H. and Yang, Z. (2014). Learning, pricing, timing and hedging of the option to invest for perpetual cash flows with idiosyncratic risk. Journal of Mathematical Economics (ABS 3) 51:1-11 (lead article).The paper considers the option of an investor to invest in a project that generates perpetual cash flows, of which the drift parameter is unobservable. The investor invests in a liquid financial market to partially hedge cash flow risk and estimation risk. We derive two 3-dimensional non-linear free-boundary PDEs satisfied by the utility-based prices of the option and the cash flows. We provide an approach to measure the information value. A numerical procedure is developed. We show that investors have not only idiosyncratic-risk-induced but also estimation-risk-induced precautionary saving demands. A growth of estimation risk, risk aversion or project risk delays investment, but it is accelerated if the project is more closely correlated with the market. Partial information results in a considerable loss, which reaches the peak value at the exercising time and increases with project risk and estimation risk. The more risk-averse the investor or the weaker the correlation, the larger the loss.
Wang, H. (2016). Risk premium and firm investment under technology upgrades and shocks. Working paper.