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Book
Hedge Funds in the Aftermath of the Financial Crisis
March 1, 2009
There is little evidence to suggest that hedge funds caused the financial crisis or contributed to its severity in any significant way. However, they do have the potential to generate systemic risk. We outline four policy actions to address this.
Book
Taxing Systemic Risk
November 29, 2011
How does one regulate systemic risk in the financial sector? We propose charging each financial firm a tax based on its expected loss during a systemic crisis.
Book
Efficiently Inefficient: How Smart Money Invests and Market Prices Are Determined
April 2, 2015
Lasse H. Pedersen demystifies the secret world of active investing by exploring hedge funds' key trading strategies. This book unites research with real-world examples and interviews to reveal how hedge fund strategies work.
Book
Monitoring Leverage
September 30, 2013
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.
Book
Market Liquidity: Asset Pricing, Risk and Crises
November 1, 2012
This book demonstrates the important role of liquidity in asset pricing. The analysis shows that higher illiquidity and greater liquidity risk reduce securities prices and raise the expected return that investors require as compensation.
Book
How to Calculate Systemic Risk Surcharges
January 1, 2013
Many argue that financial regulation should focus on limiting systemic risk. This chapter examines one proposed regulatory idea: that each institution must face a "surcharge" based on the extent to which it is likely to contribute to systemic risk.
Working Paper
Deep Value
December 4, 2017
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
Embedded Leverage
November 1, 2012
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
Quality Minus Junk
October 9, 2013
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
Early Option Exercise: Never Say Never
March 18, 2016
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.