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A Unified Framework for Value and Momentum
March 3, 2021
This paper provides a simple unifying framework for value and momentum effects in asset pricing based on the present value model. Backing out reliable expected returns from the present value model requires valuation ratios that adjust for expected future earnings growth. We show empirically that stock price momentum forecasts future growth, helps to improve value’s forecast for expected returns, and is drowned out when accounting for realized growth.
Working Paper
Understanding Momentum and Reversals
June 9, 2020
Stock momentum, long-term reversal, and other past return characteristics that predict future returns also predict future realized betas, suggesting these characteristics capture time-varying risk compensation.
Working Paper
Beyond Basis Basics: Leverage Demand and Deviations from the Law of One Price
February 7, 2020
Bases are driven by intermediaries’ cost of capital and the amount of leverage demand for an asset. Focusing on leverage demand, we find bases negatively predict futures and spot market returns with the same sign in both global equities and currencies.
Working Paper
How Do Factor Premia Vary Over Time? A Century of Evidence
July 2, 2019
We examine four prominent factor premia – value, momentum, carry, and defensive – over a century from six asset classes. The results offer support for time-varying risk premia models with important implications for theory seeking to explain the sources of factor returns.
Journal Article
Can Machines "Learn" Finance?
June 7, 2019
Can Machines “Learn” Finance?” was named the winner of the 2020 Harry M. Markowitz Award. Machine learning for asset management faces a unique set of challenges that differ markedly from other domains where machine learning has excelled. We discuss a variety of beneficial use cases and potential pitfalls for machine learning in asset management, and emphasize the importance of economic theory and human expertise for achieving success through financial machine learning.
Working Paper
Trading Costs
August 23, 2018
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.
Journal Article
Fact, Fiction, and the Size Effect
May 14, 2018
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.
Working Paper
Implementing Momentum: What Have We Learned?
December 26, 2017
We use seven years of live data to evaluate the implementability of momentum investing.
Journal Article
Momentum Crashes
September 1, 2016
A momentum strategy is a bet that past returns will predict future returns in the cross-section of assets, and is typically implemented by buying past winners and selling past losers.
Journal Article
Fact, Fiction and Value Investing
November 5, 2015
Value investing has been a part of the investment lexicon for at least the better part of a century, yet confusion about it remains.