Published Articles

The Cross-Section of Risk and Returns

Review of Financial Studies, 2020, 33 (5), 1927-1979.
ACATIS Value Prize (2nd)
Presented @
New Methods for the Cross Section of Returns Conference
EFA
AFA
TCU Finance
LBS Symposium
DGF
EEA
Hoechst AP Workshop
UCLA
AFFI
MARC
Imperial Hedge Funds Conference
HKUST
Value Investing Conference
Georgetown
CUNY
Cornell
Hannover
EPFL
UT Austin
Yale
NYU
WashU
TUM Heilbronn
TUM
CEMFI
Zurich
Cincinatti
BI Oslo
UvA
Münster
HEC Montréal
Northwestern
Columbia
Robeco
Goldman Sachs
SQA
Kepos
Stone Ridge
Deutsche Bank
AQR
Bloomberg
Barclays
Martingale
Axioma
Abstract:
A common practice in the finance literature is to create characteristic portfolios by sorting on characteristics associated with average returns. We show that the resultant portfolios are likely to capture not only the priced risk associated with the characteristic but also unpriced risk. We develop a procedure to remove this unpriced risk using covariance information estimated from past returns. We apply our methodology to the five Fama-French characteristic portfolios. The squared Sharpe ratio of the optimal combination of the resultant characteristic-efficient portfolios is 2.13, compared with 1.17 for the original characteristic portfolios.

Savings and Consumption When Children Move Out

Review of Finance, 2016, 20 (6), 2349-2377.
Joachim R. Frick Best Paper Prize
Presented @
International Young Scholar SOEP Symposium
EFMA
International Pension Workshop
DGF
VfS
VHB
SGF
Abstract:
We show, using data from the Italian Survey on Household Income and Wealth and the German Socio-economic Panel, that household consumption drops after a child moves out of a household, while at the same time adult-equivalent consumption increases significantly. After all children are gone, parents upgrade their personal lifestyle to a level approximately that of childless peers, and save only a small proportion of the freed-up resources. Since parents had fewer resources to save while they were young, retirement preparedness among them is a more serious concern than among childless individuals.

Working Papers

The Dynamics of Disagreement

R&R @ Review of Financial Studies
AQR Insight Award - Honorable Mention
institutional assets award
Presented @
Miami Behavioral
Cavalcade
Paris December
NBER
AFA
EFA
Luxembourg
Maryland
DGF
Kiel
Oxford
UCLA
LBS
HU Berlin
UvA
Münster
EPFL
WashU
Copenhagen
Oxford
Münster Econ
Notre Dame
Hannover
institutional assets
SQA
Arrowstreet
AQR
Blackrock
Martingale
Abstract:

We infer how the estimates of firm value by "optimists" and "pessimists" evolve in response to information shocks by examining returns and disagreement measures for portfolios of short-sale constrained stocks which have experienced large gains or large losses. Our analysis suggests the presence of two groups, one of which overreacts to new information and remains biased over about five years, and a second group which underreacts and whose expectations are unbiased after about one year. Our results have implications for the belief dynamics that underly the momentum and long-term reversal effect.

Former Title(s):
Overconfidence, Information Diffusion, and Mispricing Persistence; Overpriced Winners; Betting Against Winners

Streaks in Daily Returns

(with
Alexandra Koehl
Presented @
Paris December
EFA
SAFE AP Workshop
EEA
DGF
Bremen
TUM
UvA
Abstract:
A simple model of return extrapolation suggests that streaks in returns, which we define as n-day consecutive over-/under-performance relative to the market, predict future returns. We test this prediction using daily U.S. data and find strong empirical support. Buying stocks with negative streaks and selling stocks with positive streaks yields annualized Sharpe ratios around 2. We replicate the results in international markets and are able to increase the Sharpe ratio to above 3 by diversifying across regions. We argue that liquidity is unlikely to explain the results as streak portfolio returns based on mid-quote-prices are strongest among stocks with the lowest bid-ask spreads.