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Working Paper

Is There a Replication Crisis in Finance?

March 5, 2021 - Theis Ingerslev Jensen Bryan T. Kelly Lasse H. Pedersen

Several papers argue that financial economics faces a replication crisis because many studies cannot be replicated or are the result of multiple testing of too many factors. We develop and estimate a Bayesian model of factor replication that leads to different conclusions, including finding the majority of asset pricing factors can be replicated.

Working Paper

Game On: Social Networks and Markets

March 1, 2021 - Lasse H. Pedersen

This paper studies how echo-chamber effects and fake news can lead to disagreement and misinformation with effects on investors’ portfolios and market prices. It presents a model how an investment idea can propagate through a social network, generating a trading frenzy with high turnover, a bubble in the price, and high price volatility. The paper also presents empirical evidence on the dramatic events related to the GameStop stock in January 2021 and discusses broader economic implications.

Working Paper

Does ESG Help or Hurt Returns?

December 7, 2020 - Lasse H. Pedersen Shaun Fitzgibbons Lukasz Pomorski

Combining several large data sets, we compute the empirical ESG-efficient frontier and show the costs and benefits of responsible investing.

Data Set

Responsible Investing: The ESG-Efficient Frontier – Original Paper Data

October 29, 2020 - Lasse H. Pedersen Shaun Fitzgibbons Lukasz Pomorski

This the original data set used in “Responsible Investing: The ESG-Efficient Frontier” (Pedersen, Fitzgibbons and Pomorski). It contains the total returns of the value-weighted and equal-weighted portfolios used in the paper.

Working Paper

Principal Portfolios

July 7, 2020 - Bryan T. Kelly Seymon Malamud Lasse H. Pedersen

We propose a new asset-pricing framework in which all securities’ signals are used to predict each individual return. While the literature focuses on each security’s own- signal predictability, assuming an equal strength across securities, our framework is flexible and includes cross-predictability.

Journal Article

Enhanced Portfolio Optimization

Winner of the 2021 Graham and Dodd Top Award

March 2, 2020 - Lasse H. Pedersen Abhilash Babu Ari Levine

We show how to identify the portfolios that cause problems in standard mean-variance optimization (MVO) and develop an enhanced portfolio optimization (EPO) method that addresses the problems. Applying EPO on several realistic datasets, we find significant gains relative to standard benchmarks.

Journal Article

Fact and Fiction About Low-Risk Investing

February 17, 2020 - Ron Alquist Andrea Frazzini Antti Ilmanen Lasse H. Pedersen

Low-risk investing has received a lot of attention over the past decade. An intensive academic debate has spurred, and been spurred by, the growing market for low-risk strategies. This article presents five fact and dispels five fictions about low-risk investing.

Working Paper

Responsible Investing: The ESG-Efficient Frontier

October 10, 2019 - Lasse H. Pedersen Shaun Fitzgibbons Lukasz Pomorski

Combining several large data sets, we compute the empirical ESG-efficient frontier and show the costs and benefits of responsible investing.

Working Paper

Economics with Market Liquidity Risk

September 19, 2019 - Viral V. Acharya Lasse H. Pedersen

We discuss the effects of market liquidity risk on asset pricing, investment management, corporate finance, banking, financial crises, macroeconomics, monetary policy, fiscal policy, and other economic areas.

Journal Article

Trends Everywhere

May 15, 2019 - Abhilash Babu Ari Levine Yao Hua Ooi Lasse H. Pedersen Erik Stamelos

We provide new out-of-sample evidence on trend-following investing by studying its performance for 82 securities not previously examined and 16 long-short equity factors.