Portfolio Risk and Performance
Rebuffed: An Empirical Review of Buffer Funds
August 11, 2025
Equity investing is hard: volatility can be high, returns are unpredictable, and drawdowns can be painful. “Defined outcome” strategies such as buffer funds are the latest in a decades-long lineage of products promising equity-like returns with less downside risk. Like their predecessors, a closer look at these strategies reveals they fall short both empirically and theoretically.
Tax Aware
Are Completion Portfolios Effective for Managing Concentrated Stock Risk?
May 14, 2025
This paper investigates the most effective ways to manage the risk of concentrated stock positions.
Tax Aware
A Brief Guide to Pricing and Taxation of Variable Prepaid Forwards
November 6, 2024
Variable prepaid forward (VPF) contracts have been developed as a solution to hedging the risk of concentrated low-basis stock. Using options pricing theory, we develop a VPF pricing model that helps understand the VPF prepayment amount and the cash flows and tax liabilities upon VPF rolls.
Alternative Investing
CIO Perspectives: An Interview with Cliff Asness
September 1, 2024
In a wide ranging interview, AQR managing principal Cliff Asness discusses many aspects of AQR’s investment philosophy and approach from the perspective of a CIO – how we adapt our process to changing market conditions, how we think about adding innovative technology such as machine learning to our process, and more.
Machine Learning
Business News and Business Cycles
August 9, 2024
We propose an approach to measuring the state of the economy via textual analysis of business news. From the full text of 800,000 Wall Street Journal articles for 1984 to 2017, we estimate a topic model that summarizes business news into interpretable topical themes and quantifies the proportion of news attention allocated to each theme over time. News attention closely tracks a wide range of economic activities and can forecast aggregate stock market returns.
Tax Aware
Levering Up to Do Good: Direct Long-Short Investing and Charitable Giving
April 23, 2024
We use historical strategy simulations to evaluate the advantages of donating appreciated stock in the context of tax-aware long-short factor strategies. We find long-short strategies exhibit several advantages over long-only investments.
Tax Aware
Combining VPFs and Tax-Aware Strategies to Diversify Low-Basis Stock
March 7, 2024
We illustrate how combining VPFs (variable prepaid forwards) with tax-aware strategies can help diversify low-basis stock and thereby improve after-tax wealth accumulation. Long-run after-tax wealth outcomes are significantly better when a VPF is combined with tax-aware long-short factor strategies rather than with other alternatives, such as a direct-indexing strategy or a market index fund.
Machine Learning
The Virtue of Complexity in Return Prediction
March 1, 2024
Contrary to conventional wisdom, we theoretically prove that simple models severely understate return predictability compared to “complex” models in which the number of parameters exceeds the number of observations. We empirically document the virtue of complexity in U.S. equity market return prediction. Our findings establish the rationale for modeling expected returns through machine learning.
Tax Aware
Loss Harvesting or Gain Deferral? A Surprising Source of Tax Benefits of Tax-Aware Long-Short Strategies
Summer 2024
We explore the mechanism for how tax-aware long-short factor strategies, within their first three years since inception, can realize cumulative net capital losses exceeding 100% of initially invested capital, all while generating a significant pre-tax alpha – a result shown in previous research. Surprisingly, we find in these strategies that net capital losses arise not from an increased realization of capital losses but rather from the deferral of capital gains, especially short-term gains on long positions.
Factor/Style Investing
Fact, Fiction, and Factor Investing: Practical Applications
September 1, 2023
This piece distills the central concepts and practical takeaways of our Fact, Fiction, and Factor Investing article, which examined many claims about factor investing, referencing an extensive academic literature and performing simple, yet powerful, analysis to address those claims.