Bali, Turan G., et al. “Unusual news flow and the cross section of stock returns.” (2016)

Abstract We document that stocks that experience sudden increases in idiosyncratic volatility underperform otherwise similar stocks in the future, and we propose that this phenomenon can be explained by the Miller (1977) conjecture. We show that volatility shocks can be traced to the unusual firm-level news flow, which temporarily increases the level of investor disagreement about the firm value. At the same time, volatility shocks pose a barrier to short selling, preventing pessimistic investors […]

Novy-Marx, Robert. “Fundamentally, Momentum Is Fundamental Momentum.” (2015)

Abstract Momentum in firm fundamentals, i.e., earnings momentum, explains the performance of strategies based on price momentum. Earnings surprise measures subsume past performance in cross sectional regressions of returns on firm characteristics, and the time-series performance of price momentum strategies is fully explained by their covariances with earnings momentum strategies. Controlling for earnings surprises when […]

Daniel, Kent D., and Tobias J. Moskowitz. “Momentum Crashes.” (2013)

Abstract Across numerous asset classes, momentum strategies have historically generated high Sharpe ratios and strong positive alphas relative to standard asset pricing models. However, the returns to momentum strategies are negatively skewed: they experience infrequent but strong and persistent strings of negative returns. These momentum crashes are partly forecastable. They occur in what we term “panic” states – following market declines and […]

Faber, Mebane T. “A quantitative approach to tactical asset allocation.” (2013)

Abstract In this paper we update our 2006 white paper “A Quantitative Approach to Tactical Asset Allocation” with new data from the 2008-2012 period. How well did the purpose of the original paper – to present a simple quantitative method that improves the risk-adjusted returns across various asset classes – hold up since publication? Overall, […]

Asness, Clifford S., Tobias J. Moskowitz, and Lasse Heje Pedersen. “Value and Momentum Everywhere.” (2012)

Abstract We study the returns to value and momentum strategies jointly across eight diverse markets and asset classes. Finding consistent value and momentum premia in every asset class, we further find strong common factor structure among their returns. Value and momentum are more positively correlated across asset classes than passive exposures to the asset classes […]

Thurner, Stefan, J. Doyne Farmer, and John Geanakoplos. “Leverage causes fat tails and clustered volatility.” (2011)

Abstract We build a simple model of leveraged asset purchases with margin calls. Investment funds use what is perhaps the most basic financial strategy, called “value investing,” i.e., systematically attempting to buy underpriced assets. When funds do not borrow, the price fluctuations of the asset are approximately normally distributed and uncorrelated across time. This changes […]