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Journal Article

Quality Minus Junk

We show that a quality-minus-junk (QMJ) factor that goes long high-quality stocks and shorts low-quality stocks earns significant risk-adjusted returns in the U.S. and globally. Also, controlling for quality resurrects the otherwise moribund size effect.

Working Paper

Generalized Recovery

We shed new light, both theoretically and empirically, on the Holy Grail in financial economics: decoding probabilities and risk preferences from asset prices.

Working Paper

Early Option Exercise: Never Say Never

A classic rule in financial economics: Never exercise a call option and never convert a convertible bond, except just before expiration or dividend payments. This paper shows how this rule breaks down when financial frictions are introduced.

Working Paper

Carry Trades and Currency Crashes

Is there a strong link between a currency carry strategy and crash risk? We find that investing in high-interest-rate currencies while borrowing in low-interest-rate currencies delivers negatively skewed returns.

Working Paper

Responsible Investing: The ESG-Efficient Frontier

Combining several large data sets, we compute the empirical ESG-efficient frontier and show the costs and benefits of responsible investing.

White Paper

Enhanced Portfolio Optimization

We show how to identify the portfolios that cause problems in standard mean-variance optimization (MVO) and develop an enhanced portfolio optimization (EPO) method that addresses the problems. Applying EPO on several realistic datasets, we find significant gains relative to standard benchmarks.

Book

Monitoring Leverage

While the interest rate has been regarded as the single key feature of a loan, we argue that leverage is a more important measure of systemic risk. We discuss how leverage can be monitored, and highlight the benefits of doing so.

Working Paper

Liquidity and Risk Management

This paper provides a model of the interaction between risk-management practices and market liquidity. We find that a feedback effect can arise: Tighter risk management leads to market illiquidity, which then further tightens risk management.

Working Paper

Deep Value

We examine the efficacy of a hypothetical deep value strategy—where the valuation spread between cheap and expensive securities is wide relative to its history—across global asset classes and also provide new evidence on competing theories for the value premium.

Working Paper

Two Monetary Tools: Interest Rates and Haircuts

What happens when financial institutions, which play a key role as credit providers in the economy, become financially constrained themselves? This paper studies the ramifications during a liquidity crisis.