20 for Twenty: Selected Papers from AQR Capital Management on Its 20th Anniversary

632 Pages·2017·43.31 MB·English

by  John C. Bogle

20 for TWENTY

Praise for
20 for TWENTY Selected Papers from AQR Capital
Management on Its 20th Anniversary
“Read every chapter, and you’ll find acute analysis, fascinating insight, and
AQR Capital Management is a pioneer as a
some of the best writing on finance and investing that you’ll ever see.”
quantitative investor and as a publisher of
—John C. Bogle
influential academic research. This exclusive
Founder, Vanguard Group
anthology commemorates the firm’s 20th
anniversary. It traces the practical research
“The top professionals at AQR are mostly former first-rate PhD students
and faculty of the Booth School of Business at the University of Chicago. contributions of AQR’s founders and its team
I know them all quite well and respect what they bring to the money of accomplished researchers to the field of
management world. This book is an excellent compilation of their financial economics and the investing world
data-driven research, applied and academic.”
over the past two decades.
—Eugene F. Fama
Over the past 20 years, AQR founders
Cliff Asness, David Kabiller, and John Liew 2013 Nobel Laureate in Economic Sciences and Robert R. McCormick The 20 papers selected for this collection have
Distinguished Service Professor of Finance, The University of Chicago
have built an investment powerhouse that Booth School of Business formed the backbone of AQR’s investment
has published over 200 scholarly articles in philosophy. They explore the innovative ideas
peer-reviewed finance and economics “There is likely no better endorsement than a foreword by legend, that have given rise to an array of systematic
journals. Its clients include some of the Jack Bogle. Still, only a few firms have had as great an impact on the global investment strategies and have made a
study of investing and portfolio management as AQR.”
largest and most sophisticated investors lasting impact on investor portfolios. Some of
around the globe. —Frank J. Fabozzi the papers provide overarching perspectives
Editor, Journal of Portfolio Management and Senior Professor and on investment questions, practices, and
Scientific Advisor, EDHEC-Risk Institute
The firm’s story began at the University of strategies, while others focus on practical
Chicago’s PhD program, where Asness, Liew, implementation.
“This is a valuable collection of papers at the forefront of investment
and Robert Krail (another AQR co-founder)
science. AQR’s academic engagement, through the Insight Award, the
met and the foundation of AQR’s approach impressive publication record by AQR-affiliated academics, and simply The book also includes reflections on the
to systematic investing was established. the application of academic research to cost-efficient strategies is history of AQR from its early days as a start-up
Those roots in academia remain at the core pushing the investment community to take a more analytic approach hedge fund to becoming a global leader in
to investing, to the benefit of investors.”
of what AQR does today. The firm’s culture asset management. Together these essays tell
of intellectual curiosity compels its people to —Kent Daniel the story of AQR’s philosophy and its approach
challenge the status quo, disrupt long-held William von Mueffling Professor of Business, Columbia Business School to investment management, which is embodied
beliefs, and uncover new insights. by an unwavering commitment to transparent
research and meaningful client solutions.
FOREWORD BY
ISBN 978-1-5323-8538-4
90000>
John C. Bogle
Founder of the Vanguard Group
9 781532 385384
20 for TWENTY

Praise for
20 for TWENTY Selected Papers from AQR Capital
Management on Its 20th Anniversary
“Read every chapter, and you’ll find acute analysis, fascinating insight, and
AQR Capital Management is a pioneer as a
some of the best writing on finance and investing that you’ll ever see.”
quantitative investor and as a publisher of
—John C. Bogle
influential academic research. This exclusive
Founder, Vanguard Group
anthology commemorates the firm’s 20th
anniversary. It traces the practical research
“The top professionals at AQR are mostly former first-rate PhD students
and faculty of the Booth School of Business at the University of Chicago. contributions of AQR’s founders and its team
I know them all quite well and respect what they bring to the money of accomplished researchers to the field of
management world. This book is an excellent compilation of their financial economics and the investing world
data-driven research, applied and academic.”
over the past two decades.
—Eugene F. Fama
Over the past 20 years, AQR founders
Cliff Asness, David Kabiller, and John Liew 2013 Nobel Laureate in Economic Sciences and Robert R. McCormick The 20 papers selected for this collection have
Distinguished Service Professor of Finance, The University of Chicago
have built an investment powerhouse that Booth School of Business formed the backbone of AQR’s investment
has published over 200 scholarly articles in philosophy. They explore the innovative ideas
peer-reviewed finance and economics “There is likely no better endorsement than a foreword by legend, that have given rise to an array of systematic
journals. Its clients include some of the Jack Bogle. Still, only a few firms have had as great an impact on the global investment strategies and have made a
study of investing and portfolio management as AQR.”
largest and most sophisticated investors lasting impact on investor portfolios. Some of
around the globe. —Frank J. Fabozzi the papers provide overarching perspectives
Editor, Journal of Portfolio Management and Senior Professor and on investment questions, practices, and
Scientific Advisor, EDHEC-Risk Institute
The firm’s story began at the University of strategies, while others focus on practical
Chicago’s PhD program, where Asness, Liew, implementation.
“This is a valuable collection of papers at the forefront of investment
and Robert Krail (another AQR co-founder)
science. AQR’s academic engagement, through the Insight Award, the
met and the foundation of AQR’s approach impressive publication record by AQR-affiliated academics, and simply The book also includes reflections on the
to systematic investing was established. the application of academic research to cost-efficient strategies is history of AQR from its early days as a start-up
Those roots in academia remain at the core pushing the investment community to take a more analytic approach hedge fund to becoming a global leader in
to investing, to the benefit of investors.”
of what AQR does today. The firm’s culture asset management. Together these essays tell
of intellectual curiosity compels its people to —Kent Daniel the story of AQR’s philosophy and its approach
challenge the status quo, disrupt long-held William von Mueffling Professor of Business, Columbia Business School to investment management, which is embodied
beliefs, and uncover new insights. by an unwavering commitment to transparent
research and meaningful client solutions.
FOREWORD BY
ISBN 978-1-5323-8538-4
90000>
John C.
Founder of the
9 781532 385384
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Praise for 20 for Twenty
“Read every chapter, and you’ll find acute analysis, fascinating insight, and some of the
best writing on finance and investing that you’ll ever see.”
– John C. Bogle
Founder, Vanguard Group
“The top professionals at AQR are mostly former first-rate PhD students and faculty of
the Booth School of Business at the University of Chicago. I know them all quite well and
respect what they bring to the money management world. This book is an excellent compi-
lation of their data-driven research, applied and academic.”
– Eugene F. Fama
2013 Nobel Laureate in Economic Sciences and Robert R. McCormick Distinguished
Service Professor of Finance, University of Chicago Booth School of Business
“There is likely no better endorsement than a foreword by legend, Jack Bogle. Still, only a
few firms have had as great an impact on the study of investing and portfolio management
as AQR.”
– Frank J. Fabozzi
Editor, Journal of Portfolio Management and Senior Professor and Scientific Advisor,
EDHEC-Risk Institute
“This is a valuable collection of papers at the forefront of investment science. AQR’s aca-
demic engagement, through the Insight Award, the impressive publication record by AQR-
affiliated academics, and simply the application of academic research to cost-efficient
strategies is pushing the investment community to take a more analytic approach to invest-
ing, to the benefit of investors.”
– Kent Daniel
William von Mueffling Professor of Business, Columbia Business School
“As a quant enthusiast with more than 20 years of history looking at the quantitative craft
developed in investing, it is great when thoughtful organizations and their people turn their
focus to high quality curation. We have information overload and yet a scarcity in clear-
thinking narrative on investment goals and routes to their accomplishment. This is where
20 for Twenty scores as a very interesting and accessible compendium, which does a good
job of being both contemporary and forward looking.”
– Roger Urwin
Global Head of Investment Content, Willis Towers Watson
BK-AQR-20TH_ANNVI_ANTHOLOGY-180110-FM.indd 3 25/09/18 2:30 PM
Praise for 20 for Twenty
(Continued)
“So many of ‘the smartest guys in the room’ are in the big room called AQR that all serious
investors will be delighted to have, read, and ponder carefully this inside report on what
they have been thinking about that we should all be thinking about if we want to keep up.”
– Charles D. Ellis
Founder, Greenwich Associates and author of Winning the Loser’s Game
“As I look over the amazing body of work that Cliff Asness and his associates have
produced over the past 20 years, I recall with pride my (hard but vain) attempts to hire Cliff
as a fresh PhD. And what shines through these papers is what Jack Bogle, in his foreword,
describes as an all-too-rare ‘passion for truth’—now that we should all admire!”
– Martin L. Leibowitz
Managing Director in Equity Research, Morgan Stanley
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20 for Twenty
Selected Papers from AQR Capital
Management on Its 20th Anniversary
Foreword by
John C. Bogle
Founder, Vanguard Group
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Copyright © 2018 AQR Capital Management, LLC.
All rights reserved. This book or any portion thereof may not be reproduced or used in
any manner whatsoever without the express written permission of the copyright owner
except for the use of brief quotations in a book review.
Disclaimer: The views and opinions expressed herein are those of the authors and do not
necessarily reflect the views of AQR Capital Management, LLC or its affiliates (collec-
tively “AQR”) nor do they constitute an offer or solicitation of an offer, or any advice or
recommendation, to purchase any security, strategy or investment product. The informa-
tion contained herein does not represent valuation judgments with respect to any finan-
cial instrument, issuer, security or sector that may be described or referenced herein and
does not represent a formal or official view of AQR. While the publisher and AQR have
used their best efforts in preparing this book, they make no representations or warranties
with respect to the accuracy or completeness of the contents of this book and specifically
disclaim any implied warranties of merchantability of fitness for a particular purpose. No
warranty may be created or extended by sales representatives or written sale materials.
The advice and strategies contained herein may not be suitable for a reader’s situation.
A reader should consult with a professional where appropriate. Any liability as a result
of this book (including any direct, indirect, special or consequential loss or damage) is
expressly disclaimed by the publisher and AQR.
Printed in the United States of America.
ISBN 978-1-5323-8538-4 (print)
ISBN 978-1-5323-8664-0 (ebook)
First printing, 2018.
www.aqr.com
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Dedicated to AQR clients and employees.
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