Factors vs. Characteristics

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1. Introduction Fama and French (1993) found that both a firm's size and its book-to-market ratios are highly correlated with its average excess return as illustrated in Figure 1 below. For instance, the center panel says that stocks with low … [Continue reading]

Effective Financial Theories

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1. Introduction One of the most astonishing things about financial markets is that there is interesting economics operating at so many different scales. Yet, no one would ever guess this fact by looking at standard asset pricing theory. To … [Continue reading]

Summary: Trading on Coincidences

1. Motivating Example This post gives a non-technical summary of the results in my job market paper, Trading on Coincidences (2012). I start with a simple example. Suppose you see Apple among the $10$ stocks with the highest returns over the past … [Continue reading]