March 5, 2021
Several papers argue that financial economics faces a replication crisis because many studies cannot be replicated or are the result of multiple testing of too many factors. We develop and estimate a Bayesian model of factor replication that leads to different conclusions, including finding the majority of asset pricing factors can be replicated.
March 15, 2021
Hear from Ted Pyne, Head of AQR’s U.S. Wealth Group, on the potential benefits of tax aware alternatives for U.S. taxable investors.
Factor/Style Investing
March 5, 2021
Several papers argue that financial economics faces a replication crisis because many studies cannot be replicated or are the result of multiple testing of too many factors. We develop and estimate a Bayesian model of factor replication that leads to different conclusions, including finding the majority of asset pricing factors can be replicated.
Tax Aware
March 3, 2021
This paper provides a simple unifying framework for value and momentum effects in asset pricing based on the present value model. Backing out reliable expected returns from the present value model requires valuation ratios that adjust for expected future earnings growth. We show empirically that stock price momentum forecasts future growth, helps to improve value’s forecast for expected returns, and is drowned out when accounting for realized growth.
Trading
March 1, 2021
This paper studies how echo-chamber effects and fake news can lead to disagreement and misinformation with effects on investors’ portfolios and market prices. It presents a model how an investment idea can propagate through a social network, generating a trading frenzy with high turnover, a bubble in the price, and high price volatility. The paper also presents empirical evidence on the dramatic events related to the GameStop stock in January 2021 and discusses broader economic implications.
February 17, 2021
The sharp deleveraging across arbitrage markets in March 2020 was followed by very strong performance in 2H 2020. In our recent webinar and summary, we review what drove last year’s returns in SPACs, convertibles and mergers, and discuss why we are optimistic about the outlook for 2021 and beyond.
Asset Allocation
Q1 2021
We update our estimates of medium-term (5- to 10-year) expected returns for major asset classes. We also discuss what investors should expect from the stock-bond correlation in the coming decade.
Macroeconomics
Q4 2020
The COVID-19 pandemic and the responses to it by governments, central banks and consumers have unleashed both disinflationary and inflationary forces, but we do not know which forces will win over the longer term. We explore the historical inflation sensitivities of a range of different investments and present the benefits of both risk-balanced asset allocations and dynamic directional strategies to prepare for uncertain times.
ESG Investing
December 21, 2020
We discuss how an investment portfolio could dramatically reduce its carbon footprint, potentially even achieving a ‘net zero’ carbon footprint. We discuss the pros and cons of techniques to achieve carbon reduction goals, including security selection, shorting high carbon footprint companies, and trading instruments such as carbon offsets and carbon permits.
December 18, 2020
2020 is almost over, but it has left many questions unanswered. This week, I’ll answer eleven of them in a not-so-fond farewell to the year. It will be forecast-free. If you want forecasts you can go to any news site or turn on any TV channel. Or wait in line anywhere. Happy New Year!
ESG Investing
December 7, 2020
Combining several large data sets, we compute the empirical ESG-efficient frontier and show the costs and benefits of responsible investing.
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