|
|
|
|
|
|
|
|
Andrea Frazzini AQR Capital Management, LLC Two Greenwich Plaza, 3rd Floor Greenwich,
Connecticut 06830 Adjunct Associate Professor of Finance Leonard N. Stern School of Business 44 West 4th Street, 9-150 New York, NY 10012 Email: |
|
|
Curriculum Vitae In
the News
Teaching
MBA (restricted) Teaching PHD (restricted) |
|
|
|
|
Research (Google Scholar) |
|
|
|
“Embedded
Leverage" (with Lasse H. Pedersen), 2011. AQR Working paper Many financial instruments are
designed with embedded leverage such as options and leveraged exchange traded
funds (ETFs). Embedded leverage alleviates investors’ leverage constraints
and, therefore, we hypothesize that embedded leverage lowers required
returns. Consistent with this hypothesis, we find that asset classes with
embedded leverage offer low risk-adjusted returns and, in the cross-section,
higher embedded leverage is associated with lower returns. A portfolio which
is long low-embedded-leverage securities and short high-embedded-leverage
securities earns large abnormal returns, with t-statistics of 8.2 for equity
options, 6.3 for index options, and 2.1 for ETFs. We provide extensive
robustness tests and discuss the broader implications of embedded leverage
for financial economics. “The
Devil in HML’s Details" (with Cliff Asness), 2011. AQR
Working paper This
paper challenges the standard method for measuring “value” used in academic work
on factor pricing and behavioral finance. The
standard method calculates book-to-price (B/P) at portfolio formation using
lagged book data, aligns price data using the same lag (ignoring recent price
movements), and holds these values constant until the next rebalance. We
propose two simple alternatives that use more timely
price data while retaining the necessary lag for measuring book. We construct
portfolios based on the different measures for a US sample (1950-2011) and an
International sample (1983-2011). We show that B/P ratios based on more
timely prices better forecast true (unobservable) B/P ratios at fiscal
yearend. Value portfolios based on the most timely
measures earn statistically significant alphas ranging between 305 and 378
basis point per year against a 5-factor model itself containing the standard
measure of value, as well as market, size, momentum and a short term reversal
factor. “Leverage
Aversion and Risk Parity" (with Cliff Asness and Lasse
H. Pedersen), 2010. Financial
Analysts Journal, forthcoming Leverage
aversion changes the predictions of modern portfolio theory: It causes safe
assets to offer higher risk-adjusted returns than riskier assets. Consuming
the high risk-adjusted returns offered by safe assets requires leverage,
creating an opportunity for investors with the ability and willingness to
borrow. A Risk Parity (RP) portfolio exploits this in a simple way, namely by
equalizing the risk allocation across asset classes, thus overweighting safe
assets relative to their weight in the market portfolio. We show empirically
that RP has outperformed the market over the last century by a statistically
and economically significant amount. “Betting Against Beta" (with Lasse H. Pedersen),
2010. NBER Working Paper No. 16601. Under
revision We present a model with leverage and margin
constraints that vary across investors and time. We find evidence consistent
with each of the model’s five central predictions: (1) Since constrained
investors bid up high-beta assets, high beta is associated with low alpha, as
we find empirically for U.S. equities, 20 international equity markets,
Treasury bonds, corporate bonds, and futures; (2) A betting-against-beta
(BAB) factor, which is long leveraged low-beta assets and short high-beta
assets, produces significant positive risk-adjusted returns; (3) When funding
constraints tighten, the return of the BAB factor is low; (4) Increased
funding liquidity risk compresses betas toward one; (5) More constrained
investors hold riskier assets. “Hiring Cheerleaders: Board
Appointments of "Independent" Directors" (with Lauren Cohen and Christopher Malloy), Management Science, forthcoming Using a unique, hand-collected database of
independent directors, we provide evidence that firms appoint independent
directors who are overly sympathetic to management, while still technically
independent according to regulatory definitions. We explore a subset of
independent directors for whom we have detailed, micro-level data on their
views regarding the firm prior to being appointed to the board: sell-side
analysts who are subsequently appointed to the board of companies they
previously covered. We find that boards appoint overly optimistic analysts
who are also poor relative performers. The magnitude of the optimistic bias
is large: 82.0% of appointed recommendations are strong-buy/buy
recommendations, compared to 56.9% for all other analyst recommendations. We
find that appointed analysts’ optimism is stronger at precisely those times
when firms’ benefits are larger, and that appointing firms increase earnings
management, and perform poorly, following these board appointments. “Sell Side School Ties” (with Lauren Cohen and Christopher Malloy), 2010.
Journal of Finance , 65 , 1409 – 1437 Smith Breeden Distinguished Paper Prize , 2011 We study the impact of
social networks on agents’ ability to gather superior information about
firms. Exploiting novel data on the educational backgrounds of sell side
analysts and senior corporate officers, we find that analysts outperform by
up to 6.60% per year on their stock recommendations when they have an
educational link to the company. Pre-Reg FD, this
school-tie return premium is 9.36% per year, while post-Reg
FD the return premium is nearly zero. In contrast, in an environment that did
not change selective disclosure regulation (the UK), the school-tie premium
is large and significant over the entire sample period. “The Small World of Investing:
Board Connections and Mutual Fund Returns” ,
2008, (with Lauren Cohen and Christopher Malloy), Journal of Political Economy, Vol. 116, 951-979, 2008 Global
Investors Award, Best Paper in Asset Pricing, European Finance Association
2007 This paper uses social networks
to identify information transfer in security markets. We focus on connections
between mutual fund managers and corporate board members via shared education
networks. We find that portfolio managers place larger bets on firms they are
connected to through their network, and perform significantly better on these
holdings relative to their non-connected holdings. A replicating portfolio of
connected stocks outperforms a replicating portfolio of non-connected stocks
by up to 8.4% per year. Returns are concentrated around corporate news
announcements, consistent with mutual fund managers gaining an informational
advantage through the education networks. Our results suggest that social
networks may be an important mechanism for information flow into asset
prices. |
|
|
The Earnings Announcement Premium
and Trading Volume (with
Owen Lamont), December 2006, NBER Working paper w13090. On average, stock prices rise around scheduled earnings announcement
dates. We show that this earnings announcement premium is large, robust, and
strongly related to the fact that volume surges around announcement dates.
Stocks with high past concentration of trading activity around earnings
announcement dates earn the highest announcement premium, suggesting some
common underlying cause for both volume and the premium. We show that high
premium stocks experience the highest levels of imputed small investor
buying, suggesting that the premium is driven by buying by small investors
when the announcement catches their attention. |
|
|
Economic Links and Predictable
Returns (with Lauren Cohen). Journal of Finance, 2008, vol. 63, issue 4, pages 1977-2011 Smith Breeden Distinguished Paper Prize , 2008 This paper finds evidence of return predictability across economically
linked firms. We test the hypothesis that in the presence of investors
subject to attention constraints, stock prices do not promptly incorporate
news about economically related firms, generating return predictability
across assets. We use a dataset of firms’ principal customers to identify a
set of economically related firms, and show that stock prices do not
incorporate news involving related firms, generating predictable subsequent
price moves. A long/short equity strategy based on this effect yields monthly
alphas of over 150 basis points. |
|
|
Dumb Money: Mutual Fund Flows and
the Cross-Section of Stock Returns (with
Owen Lamont), 2006. Journal of Financial
Economics , Volume 88, Issue 2, May 2008, Pages 299-322 Second Prize: Fama/DFA Prize
for Capital Markets and Asset Pricing, 2008 We use mutual fund flows as a measure for individual investor
sentiment for different stocks, and find that high sentiment predicts low
future returns at long horizons. Fund flows are dumb money: by reallocating
across different mutual funds, retail investors reduce their wealth in the
long run. This dumb money effect is strongly related to the value effect.
High sentiment also is associated high corporate issuance, interpretable as
companies increasing the supply of shares in response to investor demand. |
|
|
The Disposition Effect and
Under-reaction to News, Journal of
Finance • Vol. LXI, No. 4 • August 2006 First Prize,
Chicago Quantitative Alliance Academic Paper Competition, 2004 First
Prize, PanAgora Asset Management Crowell Memorial Prize Competition , 2004-2005 This paper tests whether the “disposition effect,” that is the
tendency of investors to ride losses and realize gains, induces “underreaction” to news, leading to return predictability.
I use data on mutual fund holdings to construct a new measure of reference
purchasing prices for individual stocks, and I show that post-announcement
price drift is most severe whenever capital gains and the news event have the
same sign. The magnitude of the drift depends on the capital gains (losses)
experienced by the stock holders on the event date. An event-driven strategy
based on this effect yields monthly alphas of over 200 basis points. |
|
|
Stockscreen: Hitting The
Links, SmartMoney, 1
December 2007. Too much information - Buttonwood, The Economist, 14 July
2007. 7 Money Mistakes To Avoid, SmartMoney, 1
July 2007. Point of View: Study Finds Money In
Those Old School Ties, Dow
Jones News Service, 12 June 2007. Quantifying the Role of Old-School
Ties in Investing, The New York
Times, 9 June 2007. Blame the Fund Manager, or the
Face in the Mirror? The New York
Times, 2/26/2006 Andrea Frazzini; Equities Pensions &
Investments, 12 May 2008 Investment Adviser: Don't look back, let fees do the
talking. Investment Adviser Business Day ( Study Finds Money In Those Old School Ties Dow Jones
News Service, 12 June 2007 Skippers Favour Companies With University Ties ,
Money Management Executive, 16 April 2007, Stockscreen:
Cut Your Losses; Ride Your Winners --- New research supports an old adage:
Don't fight the tape SmartMoney, 1 August 2005 |
Top of page | Sitemap | Privacy | ©
2011 Leonard N. Stern School of Business
