Whitebox gives financial research award to AQR team

By Lawrence Delevingne

Tue Aug 20, 2013

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Andy Redleaf's firm gives employees of Cliff Asness' quant shop a cash prize for work on time series momentum investing.

  Tobias Moskowitz 
   Tobias Moskowitz
(Photo: Chicago Booth)
Staffers at Minneapolis-based Whitebox Advisors are big fans of the investing research coming out of AQR Capital Management in Greenwich.

After months of deliberation, a committee from Andy Redleaf's $2.4 billion multistrategy hedge fund firm chose a paper written by three men with AQR ties as the winner of the second annual Whitebox Prize, a $25,000 award for financial research. Tobias Moskowitz, Yao Hua Ooi and Lasse Heje Pedersen were chosen for their May 2012 paper "Time Series Momentum" in the Journal of Financial Economics.

"This research was unanimously agreed upon by the prize committee as a major contribution to both financial literature and the investment community," said Redleaf, founder and chief executive officer of Whitebox, in a statement. "By focusing not on a security’s return relative to its peers but on its return relative to itself, the authors give investors an actionable investment hypothesis and confirm what has long been believed about the power of momentum as a means of position selection."

Ooi is a principal in the global asset allocation team at AQR, focusing on research and portfolio management of macro-related strategies such as commodities, risk parity, and managed futures, according to a firm biography. Pedersen is also a Principal at AQR with the asset allocation unit. He is also the John A. Paulson Professor of Finance and Alternative Investments at the New York University Stern School of Business and a professor at Copenhagen Business School. Moskowitz is a consultant to AQR and the Fama Family Professor of Finance at the University of Chicago Booth School of Business.

The men used the paper to document patterns--or "time series momentum"--in equity currency, commodity, and bond prices. They found "persistence in returns for 1 to 12 months that partially reverses over longer horizons, consistent with sentiment theories of initial under-reaction and delayed over-reaction," according to the paper's abstract. "A diversified portfolio of time series momentum strategies across all asset classes delivers substantial abnormal returns with little exposure to standard asset pricing factors and performs best during extreme markets."

What struck Redleaf about the work is just how much is left to learn. "The results only tell part of the story of why we reacted so strongly to this paper," Redleaf said. "What also struck us was what those results imply: Neither Modern Portfolio Theorists nor Behavioral Finance have got the whole story. When it comes to the markets there is still so much we don’t know, so much left for researchers like Moskowitz, Ooi, and Pedersen to discover."

Winners of a second place $5,000 Whitebox prize were "Option-implied Measures of Equity Risk," by Bo-young Chang, Peter Christoffersen, Kris Jacobs and Gregory Vainberg; and "Mutual Fund Trading Pressure: Firm-Level Stock Price Impact and Timing of SEOs," by Mozaffar Khan, Leonid Kogan and George Serafiem.

Staffers at AQR routinely publish research. Founder Cliff Asness even published a new paper today on "quality" and "junk" stock prices. One of his co-authors is award winner Pedersen.

A spokeswoman for AQR, Marge Wyras, did not immediately respond to a request for comment.

See also: Whitebox expands staff following strong performance | Whitebox names former prime brokerage sales exec CFO

Time Series Momentum - Journal of Financial Economics 2012

ISSN: 2151-1845 / CDC10004H

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