Working Paper

(Il)liquidity Premium in Credit Markets: A Myth?

Do investors demand a risk premium for holding less liquid corporate bonds? We investigate the evidence.

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Portfolio Construction

Active and Passive Investing — The Long-Run Evidence

More careful thinking is needed to separate facts from fiction in the hotly contested debate between active and passive investing.

Macroeconomics

Macro Wrap-Up: Some Unscientific Thoughts about Retail Sales and Markets

There was a relatively big reaction to seemingly unremarkable data this week. What’s that telling us?

Factor/Style Investing

Fact, Fiction and the Size Effect

Despite its long and illustrious history, much confusion about the size effect remains. We examine common claims about the size effect and seek to clarify some of the misunderstanding surrounding it.

Tax Aware

The Tax Benefits of Separating Alpha from Beta

We show how separating a portfolio into an active long-short portfolio and a passive index portfolio can have significant tax benefits.

Macroeconomics

Macro Wrap-Up: Stop Thinking It's Macro – It's Value

Perhaps someday we’ll have a clearer macro explanation for why value has underperformed, but it shouldn’t be worrying if we don’t.

Volatility

Understanding the Volatility Risk Premium

The volatility risk premium (VRP) represents the compensation that investors earn for providing protection against market losses. We explain the reasons why it may exist and explore its historical performance with a simple option-selling strategy.

Fixed Income

Cliff Asness on Bloomberg Television

Cliff Asness was interviewed on Bloomberg Television about AQR’s expansion into fixed income. The segment focused on our diversified, factor-based approach relative to traditional fixed income portfolios.

Macroeconomics

Macro Wrap-Up: The Yield Curve Is a Very Interesting Topic

The current yield curve is saying that monetary policy is tightening, but isn’t too tight yet. It’s flashing an orange warning but isn’t red.

Tax Aware

Style Investing and Tax Efficiency: Building a More Tax Efficient Global Equity Portfolio for Australian Investors

We evaluate the performance of long-only style-based equity strategies after accounting for taxes. We and find that style investing can be efficiently implemented in a tax-aware manner for Australian investors.

Tax Aware

Partnership Allocations and Their Effects on Tax-Aware Fund Investors

We discuss certain accounting principles relevant for investors in tax-aware funds structured as limited partnerships. We present a simple stylized model that illustrates that under such accounting principles new investors do not materially suffer from unrealized gains accumulated in a tax-aware fund.