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Andrea Frazzini The Graduate On leave 2008-2009: AQR Capital Management,
LLC Two
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Curriculum Vitae In the News Teaching MBA (restricted) Teaching PHD (restricted) |
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Research |
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We test the hypothesis 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 end up serving on the board of companies they previously covered. We find striking evidence that boards
appoint overly optimistic analysts who exhibit little skill in evaluating the
firm itself, other firms within the firm’s industry, or even other firms in
general. 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 appointed
analysts appear to be more closely tied to appointing firms than the title
"independent" director would suggest. Our results challenge the widely held view
that appointments of independent directors necessarily add objectivity to the
board of a firm.
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 equity analysts and senior officers of
firms, we test the hypothesis that analysts’ school ties to senior officers
impart comparative information advantages in the production of analyst
research. We find evidence that
analysts outperform on their stock recommendations when they have an
educational link to the company. A simple portfolio strategy of going long
the buy recommendations with school ties and going short buy recommendations
without ties earns returns of 5.40% per year.
We test whether Regulation FD, targeted at impeding selective
disclosure, constrained the use of direct access to senior management. We
find a large effect: pre-Reg FD the return premium
from school ties was 8.16% per year, while post-Reg
FD the return premium is nearly zero and insignificant. “The Small World of
Investing: Board Connections and Mutual Fund Returns” (with Lauren Cohen and Christopher Malloy),
April 2007 NBER
Working paper w13121. 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. |
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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. |
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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. |
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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. |
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The Disposition
Effect and Under-reaction to News, Journal of Finance •
Vol. LXI, No. 4 • August 2006 First Prize, 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.
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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 Favor 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 |
