Working Paper
May 13, 2021
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Tobias J. Moskowitz
Kaushik Vasudevan
We relate the low risk anomaly in financial markets to the Favorite-Longshot Bias in betting markets and provide novel evidence to both anomalies. Synthesizing the evidence, we study the joint implications from the two settings for a unifying explanation. Rational theories of risk-averse investors with homogeneous beliefs cannot explain the cross-sectional relationship between diversifiable risk and return in betting markets. Rather, we appeal to models of non-traditional preferences or heterogeneous beliefs.
White Paper
April 17, 2020
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Nathan Sosner
Ted Pyne
Joseph Liberman
Steven Liu
We describe a hypothetical Tax-Aware Defensive Equity Long-Short strategy, including its construction and pre-tax and after-tax performance. The strategy closely replicates the pre-tax performance of a similar hypothetical tax-agnostic strategy and has the potential to achieve a meaningful tax benefit for a taxable investor.
Journal Article
February 15, 2017
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Cliff Asness
Andrea Frazzini
Niels Joachim Gormsen
Lasse H. Pedersen
We test whether the low-risk effect is driven by (a) leverage constraints and thus risk should be measured using beta vs. (b) behavioral effects and thus risk should be measured by idiosyncratic risk.
Journal Article
August 21, 2014
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Cliff Asness
Andrea Frazzini
Lasse H. Pedersen
The strategy of buying safe low-beta stocks while shorting (or underweighting) riskier high-beta stocks has been shown to deliver significant risk-adjusted returns.
Journal Article
January 1, 2014
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Andrea Frazzini
Lasse H. Pedersen
A basic premise of the capital asset pricing model (CAPM) is that all agents invest in the portfolio with the highest Sharpe ratio, or expected excess return per unit of risk, and leverage or de-leverage this portfolio to suit their risk preferences.
However, many investors — such as individuals, pension funds and mutual funds — are constrained in the leverage that they can take, and therefore overweight risky securities instead.
Journal Article
November 1, 2013
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Andrea Frazzini
David G. Kabiller
Lasse H. Pedersen
[Winner of the CFA Institute's 2018 Graham and Dodd Award] What is the secret to Warren Buffett's success? We seek the answer via a thorough empirical analysis in light of some the latest research on the drivers of returns.
Journal Article
October 9, 2013
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Cliff Asness
Andrea Frazzini
Lasse H. Pedersen
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.