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Xu's GSB Portrait

Xu Lu

Assistant Professor of Finance and Business Economics

Foster School of Business,

University of Washington


About Me

Greetings! I am Xu Lu, an assistant professor in finance and business economics at the Foster School of Business.

My research centers on financial intermediation. I am particularly interested in how depositor behaviors affect banking and how intermediary constraints influence asset prices.

I obtained my Ph.D. in finance from Stanford GSB in 2023. Before that, I received my bachelor's degrees in economics, finance, and maths from Tsinghua University in 2017.
Curriculum vitae (updated: July 2024).

Working Papers


[5] The Dynamics of Deposit Flightiness and its Impact on Financial Stability,

with Jane Li, and Yiming Ma. Updated: June 2024

We find that the flightiness of depositors displays pronounced fluctuations over time, reaching unprecedentedly high levels after the Covid-19 crisis. Elevated deposit flightiness coincides with low interest rate environments and expansions in central bank reserves. Our dynamic model rationalizes these trends based on heterogeneity in investors' convenience value, where those in the banking system value convenience benefits of deposits more. Following deposit inflows from outside investors, e.g., due to QE's reserve expansions, the marginal depositor becomes more rate-sensitive and the risk of panic runs increases. Our findings imply that the risk of panic runs triggered by policy rate hikes is amplified when the Fed's balance sheet size is larger, which highlights a novel linkage between conventional and unconventional monetary policy.

[4] The Making of an Alert Depositor: How Payment and Interest Drive Deposit Dynamics,
with Yang Song, and Yao Zeng. Updated: April 2024

Are depositors sleepy? We challenge the traditional view of depositor sleepiness by introducing a new notion, depositor alertness, and find supporting evidence leveraging transaction-level data from over a million U.S. depositors across major U.S. banks. Depositors shift their deposits across bank accounts more actively when the payment technology linked to their accounts is more efficient, which we define as the payment channel. Furthermore, depositors facing higher payment frictions are also more attuned to interest rate risk and shift their deposits more actively, which we define as the interest risk channel. Depositor alertness is particularly pronounced during periods of rate hikes but diminishes when rates fall. We further draw causal evidence using a novel instrument: the exogenous exposure to fast payment technologies reduces transfer frictions, which consequently heightens depositor alertness. Our findings have significant policy implications, highlighting the impact of depositor behavior on bank funding costs and risks, especially amidst rapid developments in new payment technologies and during times of monetary tightening.

Presentations: BIS-CEPR-SCG-SFI Conference on Financial Intermediation, Copenhagen Business School, Chinese University of Hong Kong, Deutsche Bundesbank-Bank of Canada International Conference on Payments and Securities Settlement, European Financial Association Annual Meeting, FDIC Bank Research Conference, Georgia Tech-Atlanta Fed Household Finance Conference,  International Risk Management Conference, Iowa State University, London School of Economics, New York Fed, Pacific Northwest Finance Conference,  OCC Bank Research Symposium, Peking University, Philadelphia Fed, Stanford Institute for Theoretical Economics Conference, and Wharton.

[3] Remeasuring Scale in Active Management,
with Shiyang Huang, Yang Song, and Hong Xiang. Updated: April 2024

We argue that at least 65% more total assets should be included in estimating the scale of actively managed portfolios. By merging two major datasets on institutional products, we identify trillions of institutional assets that are managed under the same investment strategy as their twin mutual funds with an average return correlation of 99.9%. Overlooking the assets under management for institutional products skews crucial estimates in asset management research. We show that by including these assets, fund-level (industry-level) diminishing returns to scale of mutual funds reduce by up to 90% (50%), suggesting a larger capacity of active asset management than the literature believed. We also observe that the dollar value added of active strategies is more substantial and persistent than past assessments suggested. The measurement concern highlighted extends beyond active management, given the important role of asset management in asset pricing and overall financial stability.

Presentations: MFA 2024,  World Symposium on Investment Research, University of Washington, Hong Kong Polytechnic University, CKGSB, Chinese University of Hong Kong (Shenzhen), University of Connecticut, and University of Georgia.

[2] Monetary Transmission and Portfolio Rebalancing: A Cross-Sectional Approach,
with Lingxuan Wu. Updated: November 2023
Revise & Resubmit

We propose that institutional investors’ portfolio rebalancing across asset classes contributes to the stock market’s puzzlingly large response to monetary shocks. We identify this channel through a cross-sectional approach and find that, ceteris paribus, a stock with 10% higher ownership by “rebalancers” experiences a 3.7bp larger loss to a 10bp positive monetary shock around FOMC announcements. Our quantity-based model shows that the aggregate market reaction relates to cross-sectional return differences due to rebalancing via a ratio of two demand elasticities. Rebalancing demand accounts for about one-third to two-thirds of the market reaction attributed to expected excess returns. We consider a set of exercises to corroborate our mechanism: (1) a quasi-experimental setting exploiting within-firm variations using dual-class shares, (2) stronger price reactions after quarter/month-end FOMC meetings when rebalancing is more imminent, and (3) placebo tests discriminating between rebalancing institutions and pure-equity institutions.

Presentations: CUHK Business School, Harvard, HBS, JHU Carey,Oxford Saïd-VU SBE Macro-finance Conference, Treasury OFR Rising Scholar Conference, Rochester Simon, Stanford GSB, Tsinghua PBCSF, UIUC Gies, USC Marshall, UT Dallas Jindal, Minnesota Carlson, and UW Foster.

[1] The Political Economy of China's Housing Boom,
with Adam Zhang. Updated: March 2023

This paper identifies the contribution of the Chinese Communist Party's performance-based promotion system to the country's real estate boom from 2003 to 2015. City-level leaders prioritizing economic growth allocate land at discounted prices to industrial firms rather than housing developers. Our analysis reveals that personal connections with provincial superiors are crucial for promotion and hence affect local land and housing supply. When city leaders share the same hometown as newly appointed provincial leaders, all else equal, their chances of promotion increase by 60%, this reduces the need for performance-based land discounts, resulting in lower growth in residential land and housing prices. Our findings indicate that cities with leaders who share the same birthplace as provincial leaders experience a significantly higher supply of residential land, and housing price growth rates are also 5% lower in these cities.

Presentations: AREUEA National Conference, Stanford, Stanford GSB.



Finance 423: Banking and the Financial System, Winter 2024

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