Search Past Commentary

  1. For years I've been an admirer of, and thankful for, those who have created and publicly shared the databases that allow us to do our research far easier and better. Today AQR attempts to join them in making such a contribution by introducing the AQR Data Library.

  2. Cliff Asness’ running commentary about investing, which non-shockingly emphasizes quantitative investing. It may also entail some macroeconomics, but only as it bears directly on the ability to create returns for clients and on investing in general.

  3. I have long been appreciative of those pioneers who have been instrumental in advancing our understanding of investing by conducting, and most importantly sharing, their research and insights. By taking the time to make their research and ideas accessible to a wider audience, they have given us all the opportunity to become better investors. Today, with the launch of “Words From the Wise” interview series, we continue to learn from industry leaders and benefit from their experiential wisdom.

  4. The recent Sanford Bernstein research note calling indexing “worse than Marxism,” created quite the kerfuffle. In my Bloomberg op-ed article, I discuss how the Bernstein note, while perhaps kick-starting some valuable discussions in the world of finance, missed, or at least minimized, something much more important — free riding on price signals is not a bug of Capitalism to be exploited by “greedy red indexers,” but instead may be the most important feature of Capitalism.

  5. Here is a link to my latest on the ongoing issue of style timing and the very legitimacy of some of the factor strategies. To whet your appetite, below is the abstract of the paper:

    Arnott, Beck, Kalesnik, and West (2016) (ABKW) study smart beta or factor-based strategies and come to the following conclusions: (1) Aside from value, most popular factor strategies currently look expensive. (2) These expensive factor valuations portend lower future returns and a strong possibility of a future “factor crash” in which they go “horribly wrong.” And (3) many of these non-value factors were never real to start with because their historical performance was due to factor richening. That is, researchers mistook the one-time returns from factor richening for truly repeatable “structural alpha.” ABKW’s implied bottom line (their many protestations to only making modest recommendations aside): stick with value, dump the other factors. This essay elaborates on my response in Asness (2016). In summary: (1) I find non-value factor valuations moderately expensive, but not as expensive as ABKW. (2) I argue that ABKW exaggerate the power of factor timing by improperly using long-horizon regression techniques. More proper short-horizon regressions suggest some weak factor timing ability and given this predictability, I construct value-based tactical factor timing strategies to test them. Unfortunately, these strategies add little to portfolios that are already invested in the value factor. It turns out that this “newly” discovered timing tool is, yet again, mostly just a version of regular old value investing. And (3) I examine ABKW’s claim that factor richening drives much of non-value long-term factor performance and find that this very serious allegation about other researchers’ work is totally without merit. Overall, these results suggest that one should be wary of aggressive factor timing. Instead, investors are better off identifying factors they believe in, and staying diversified across them, unless we see far more extreme pricing than we do today.

  6. In its normal form the small firm effect is, on a host of dimensions, weak to possibly nonexistent. Once adjusted for quality exposure it is real and spectacular.

  7. The term “smart beta” (including “Fundamental Indexing”) is just a new way to describe some well-known and well-tested investment ideas.

  8. For me, a good book is one that speaks to something important and that causes me to think differently and more clearly about the chosen topic. My AQR colleague Lasse Pedersen has written just such a book, Efficiently Inefficient: How Smart Money Invests and Market Prices Are Determined. (Full disclosure: he extols me as one of many, along with our competitors.) From now on, there are two kinds of investors: the efficiently inefficient ones and the merely inefficient ones who didn’t read this book.