AQR Insight Award

The AQR Insight Award, sponsored by AQR Capital Management, recognizes important, unpublished papers that provide the most significant, new practical insights for tax-exempt institutional or taxable investor portfolios. Up to three papers share a $100,000 prize.

2016 Award Winners

  1. First Prize


    2016 FIRST PRIZE

    Samuel M. Hartzmark, Ph.D., University of Chicago Booth School of Business, and Kelly Shue, Ph.D., University of Chicago Booth School of Business and NBER

    A contrast effect occurs when a previously-observed signal inversely biases perception of the next signal. As an example from experimental psychology, men rate female students less attractive if the men recently viewed pictures of beautiful actresses. This paper seeks to understand whether contrast effects can distort prices in sophisticated, liquid equity markets. The authors find that investors mistakenly perceive earnings news today as more impressive if yesterday’s earnings surprise was bad and less impressive if yesterday’s surprise was good. They further show that their results cannot be explained by alternative explanations including slow dissemination of information from previous earnings announcements

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  2. First Prize


    2016 FIRST PRIZE

    Darrell Duffie, Ph.D., Graduate School of Business, Stanford University, and Haoxiang Zhu, Ph.D., MIT Sloan School of Management

    Investors use size discovery trading mechanisms such as “workups,” “dark pools,” and “matching sessions” to understand how best to quickly trade large blocks of an asset without impacting its price. The authors argue that size discovery, when combined with price discovery, is an effective tool in mitigating inefficiencies caused by buyers and sellers seeking to avoid price impact when trading

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  3. Honorable Mention


    2016 HONORABLE MENTION

    Stefano Giglio, Ph.D. and Bryan Kelly, Ph.D., both from the University of Chicago Booth School of Business

    Evaluating prices and risk across time horizons or “along the term structure” forms an important aspect of any asset pricing model. It is important, for instance, to understanding the dynamics of prices through time, the existence of any arbitrage opportunities, and for comparing results between alternative models. The authors find that prices of long maturity claims of assets are dramatically and systematically more variable than justified by standard models. Their finding is pervasive, with excess volatility evident across a wide variety of markets including equity, currencies, commodities, sovereign and corporate bonds, and inflation. The authors find that trading against long maturity excess volatility is potentially profitable after accounting for standard risk factors

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  4. Honorable Mention


    2016 HONORABLE MENTION

    Mikhail Chernov, Ph.D., UCLA Anderson School and CEPR, Francis A. Longstaff, Ph.D., UCLA Anderson School and the NBER, and Brett R. Dunn, UCLA Anderson School

    The authors model the implied prepayment function for mortgage backed securities (MBS) and find that prepayment rates are driven not only by interest rates, but by two macroeconomic factors (turnover and rate response) related to macroeconomic activity such as the unemployment rate, consumption growth, housing values, credit availability, and market uncertainty. Evidence of a significant prepayment risk premium for MBS prices emerges based on the finding that model implied prepayments substantially exceed actual prepayments. Interestingly, the risk premium is due almost entirely to compensation for turnover risk among borrowers

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  5. Honorable Mention


    2016 HONORABLE MENTION

    Erik Stafford, Ph.D., Harvard Business School

    Private equity (PE) funds tend to select relatively small stocks with low earnings multiples as measured by EBITDA. The author shows that publicly traded equities with these same characteristics have historically demonstrated high risk-adjusted returns after controlling for well-known characteristics associated with value stocks. A passive replicating strategy using modest leverage with a multi-year holding period provides a large improvement in risk- and liquidity- adjusted returns over direct allocations to PE funds after fees, suggesting that high historical returns of PE are due to selecting stocks with systematic portfolio characteristics rather than idiosyncratic active management of portfolio companies

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