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Journal Article

Betting Against Beta

January 1, 2014 - 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

Fact, Fiction and Value Investing

November 5, 2015 - Cliff Asness Andrea Frazzini Ronen Israel Tobias J. Moskowitz

Value investing has been a part of the investment lexicon for at least the better part of a century, yet confusion about it remains.

Working Paper

Embedded Leverage

November 1, 2012 - Andrea Frazzini Lasse H. Pedersen

Embedded leverage—the amount of market exposure per unit of committed capital—has become an important feature of financial instruments. We study embedded leverage in equity options, index options and ETFs, and how it affects the required returns.

Working Paper

Trading Costs

August 23, 2018 - Andrea Frazzini Ronen Israel Tobias J. Moskowitz

Using live trade data from a large institutional money manager over a 19-year period, we find actual trading costs to be an order of magnitude smaller than previous studies suggest.

White Paper

Understanding Defensive Equity

July 1, 2012 - Andrea Frazzini Jacques A. Friedman Hoon Kim

This paper analyzes the intuition behind defensive equity. We then analyze the empirical evidence, construction and performance of defensive equity portfolios, and discuss the possible explanations for its historical outperformance.

Journal Article

Betting Against Correlation: Testing Theories of the Low-Risk Effect

February 15, 2017 - Cliff Asness Andrea Frazzini Niels Joachim Gormsen Lasse H. Pedersen

What drives the low-risk effect? We test whether it's driven by leverage constraints (and thus risk should be measured using beta) or behavioral effects (and thus risk should be measured by idiosyncratic risk).

Working Paper

Hiring Cheerleaders: Board Appointments of "Independent" Directors

June 1, 2012 - Lauren Cohen Andrea Frazzini Christopher J. Malloy

In this paper we exploit a database of independent directors to test the hypothesis that boards appoint directors who, while technically independent according to regulatory definitions, nonetheless may be overly sympathetic to management.

Journal Article

Quality Minus Junk

October 9, 2013 - 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.

Journal Article

Deactivating Active Share

January 6, 2016 - Andrea Frazzini Jacques A. Friedman Lukasz Pomorski

The authors investigate Active Share, a measure meant to determine the level of active management in investment portfolios, and find it wanting.

Journal Article

Buffett's Alpha

November 1, 2013 - 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.