BibTeX (updated 8/2016)
Efficiently Inefficient: Smart Money Invests and Market Prices Are Determined, Lasse Heje Pedersen, Princeton University Press, 2015.
Trading strategies, a new view of financial markets, and interviews with 8 great investors. Selected reviews (see much more on the book website):
Market Liquidity: Asset Pricing, Risk, and Crises, Yakov Amihud, Haim Mendelson, and Lasse Heje Pedersen, Cambridge University Press, 2013.
Review in Quantitative Finance and beyond, Korajczyk: "pivotal in furthering our understanding of the effects of illiquidity on asset pricing."
PUBLISHED AND FORTHCOMING PAPERS
Carry, Ralph Koijen, Tobias Moskowitz, Lasse H. Pedersen, and Evert Vrugt (2017), Journal of Financial Economics, forthcoming.
Carry is an observable component of expected returns, predicting the cross-section and time series of equity, bond, currency, and commodity returns.
Featured in ETF.com
Measuring Systemic Risk, Viral Acharya, Lasse Heje Pedersen, Thomas Philippon, and Matt Richardson (2017), The Review of Financial Studies, 30 (1), 2-47. Editor's Choice (lead paper).
An economic model of how to measure and manage systemic risk with empirical support from the recent crisis.
Associated real time systemic risk rankings here.
Dynamic Portfolio Choice with Frictions, Nicolae Garleanu and Lasse Heje Pedersen (2016), Journal of Economic Theory, 165, 487–516. Appendix.
Optimal high-frequency trading: portfolio choice with transaction costs and the connection between continuous and discrete time.
Early Option Exercise: Never Say Never, Mads Vestergaard Jensen and Lasse Heje Pedersen (2016), Journal of Financial Economics, 121 (2), 278-299. Appendix.
Theory and evidence overturning Merton's rule that one should never exercise a call early or convert a convertible bond.
Which Trend is Your Friend?, Ari Levine and Lasse H. Pedersen (2016), Financial Analysts Journal, 72 (3), 51-66.
We show that time series momentum and moving average crossovers are equivalent representations of a large class of trends, incl. HP filter, Kalman filter.
Betting Against Beta, Andrea Frazzini and Lasse Heje Pedersen (2014), Journal of Financial Economics 111 (1), 1-25 (lead paper). Slides. Excel. BAB factors.
Leverage constraints help explain the relation between risk and return in each of the major asset classes, including why high beta is low alpha.
Fama/DFA First Prize for best paper in the Journal of Financial Economics, 2014.
Swiss Finance Institute Outstanding Paper Award, 2011.
Roger F. Murray Prize, 2011.
Low-Risk Investing Without Industry Bets, Cliff Asness, Andrea Frazzini, and Lasse Heje Pedersen (2014), Financial Analysts Journal, 70 (4), 24-41.
Betting against beta works within each industry and across industries.
Monitoring Leverage, John Geanakoplos and Lasse Heje Pedersen (2014), ch. 8, 113-127, in Risk Topography: Systemic Risk and Macro Modeling, University of Chicago Press, ed. M. Brunnermeier and A. Krishnamurthy.
Monitoring leverage and margin requirement is a model-free way to monitor systemic risk and the development of liquidity spirals.
Dynamic Trading with Predictable Returns and Transaction Costs, Nicolae Garleanu and Lasse Heje Pedersen (2013), The Journal of Finance 68(6), 2309-2340. Slides. Picture.
Markowitz portfolio is a moving target. Cool closed-form optimal strategy: aim in front of the target and trade partially towards the aim.
Value and Momentum Everywhere, Cliff Asness, Tobias Moskowitz, and Lasse Heje Pedersen (2013), The Journal of Finance 68(3), 929-985. Slides. VME factors.
Value and momentum exists across global equities, commodities,currencies, and bonds - with intriguing val-mom correlation structure.
Demystifying Managed Futures, Brian Hurst, Yao Hua Ooi, and Lasse Heje Pedersen (2013), Journal of Investment Management 11(3), 42-58.
Time series momentum can explain the return of managed futures hedge funds and CTAs.
Time Series Momentum, Tobias Moskowitz, Yao Hua Ooi, and Lasse Heje Pedersen (2012), Journal of Financial Economics 104(2), 228-250 (lead paper).Slides. TSMOM factors.
Striking trends in returns in every major asset class - linked to the trading activity of hedgers and speculators.
Winner of the Whitebox Prize for Best Financial Research 2012.
Featured in the Financial Times.
Leverage Aversion and Risk Parity, Cliff Asness, Andrea Frazzini, and Lasse Heje Pedersen (2012), Financial Analysts Journal 68(1), 47-59.
A Risk Parity portfolio that over-weights safer asset classes outperforms the market. This across-asset-class evidence complements the within-asset-class evidence on Betting Against Beta.
Margin-Based Asset Pricing and Deviations from the Law of One Price, Nicolae Garleanu and Lasse Heje Pedersen (2011), The Review of Financial Studies 24(6), 1980-2022. Slides. Data.
High margin requirements = high required returns. Explains the Fed’s lending programs, the CDS-bond basis, the failure of the covered interest-rate parity, and more.
Michael Brennan Award Winner for the Best Paper in the Review of Financial Studies.
Two Monetary Tools: Interest Rates and Haircuts, Adam Ashcraft, Nicolae Garleanu, and Lasse H. Pedersen (2010), NBER Macroeconomics Annual 25, 143-180. Slides.
A macro model with financial frictions: how central bank lending facilities can ease credit frictions – with strong empirical evidence from the recent crisis.
How Sovereign is Sovereign Credit Risk?, Francis A. Longstaff, Jun Pan, Lasse H. Pedersen, and Kenneth J. Singleton (2010), American Economic Journal: Macroeconomics 3(2), 75–103.
Sovereign CDS can be explained by, and predicted by, U.S. equity, volatility, and bond market risk premia.
Featured in the Economic Times.
When Everyone Runs for the Exit, Lasse H. Pedersen (2009), The International Journal of Central Banking 5, 177- 199.
Understanding the global liquidity crisis and the quant event. Evidence on the driving mechanisms. (A solicited commentary.)
Market Liquidity and Funding Liquidity, Markus Brunnermeier and Lasse H. Pedersen (2009), The Review of Financial Studies 22, 2201- 2238.
Market liquidity and the funding conditions are mutually reinforcing, giving rise to liquidity spirals, fragility, flight to quality, and systemic risk.
Demand-Based Option Pricing, Nicolae Garleanu, Lasse H. Pedersen, and Allen Poteshman (2009), The Review of Financial Studies 22 (10), 4259-4299.
How end user demand affects option pricing when dealers cannot perfectly hedge. New theory and unique data.
Geewax, Terker & Company First Prize, 2006.
Carry Trades and Currency Crashes, Markus Brunnermeier, Stefan Nagel, and Lasse Heje Pedersen (2008), NBER Macroeconomics Annual 23, 313-348.
How the carry trade is subject to crash risk during funding liquidity crises. Results help resolve the forward premium puzzle.
Featured in Forbes.
Slow Moving Capital, Mark Mitchell, Lasse Heje Pedersen, and Todd Pulvino (2007), The American Economic Review 97, 215-220.
Empirical evidence: when arbitrageurs lose capital and new capital arrives slowly, prices become depressed and later rebound.
Liquidity and Risk Management, Nicolae Garleanu, and Lasse Heje Pedersen (2007), The American Economic Review 97, 193- 197.
Tighter risk management can lead to illiquidity and lower prices. A multiplier effects arises when illiquidity tightens risk management.
Valuation in Over-the-Counter Markets, Darrell Duffie, Nicolae Garleanu, and Lasse H. Pedersen (2007), The Review of Financial Studies 20, 1865-1900.
The effect of search and bargaining on asset prices and the dynamics of aggregate liquidity shocks.
Liquidity and Asset Prices, Yakov Amihud, Haim Mendelson, and Lasse Heje Pedersen (2005), Foundations and Trends in Finance 1, 269- 364.
A survey of the literature.
Asset Pricing with Liquidity Risk, Viral Acharya and Lasse Heje Pedersen (2005), Journal of Financial Economics 77, 375-410.
How unpredictable changes in liquidity affect security returns; a liquidity-adjusted CAPM and empirical evidence.
Fama/DFA First Prize for best paper in the Journal of Financial Economics, 2005.
NYSE Award for best paper on equity trading, Western Finance Association, 2003.
Glucksman First-Place Award for best research paper in finance, NYU Stern, 2002- 2003.
Predatory Trading, Markus K. Brunnermeier and Lasse Heje Pedersen (2005), The Journal of Finance 60, 1825-1863.
When a large trader liquidates, predators also sell, leading to price over-shooting and systemic risk.
Nominated for the Smith- Breeden Prize for best paper in The Journal of Finance, 2005.
Barclays Global Investors Award for the best conference paper at the European Finance Association, 2003.
Over-the-Counter Markets, Darrell Duffie, Nicolae Garleanu, and Lasse Heje Pedersen (2005), Econometrica 73, 1815- 1847.
I general search model for financial markets. Marketmakers' bid-ask spread is narrower for sophisticated investors with better search options (NB: reverse of information-based models).
Referenced in Nobel Prize Committee’s Scientific Background, 2010.
Adverse Selection and the Required Return, Nicolae Garleanu and Lasse Heje Pedersen (2004), The Review of Financial Studies 17, 643- 665.
Bid-ask spreads due to asymmetric information affect required returns differently than exogenous trading costs - paper shows explicitly how.
Modeling Sovereign Yield Spreads: A Case Study of Russian Debt, Darrell Duffie, Lasse H. Pedersen, and Ken Singleton (2003), The Journal of Finance 58, 119-159.
A model of credit risk accounting for both default and restructuring. The study of Russian debt develops a new estimation methodology.
Nominated for the Smith- Breeden Prize for best paper in The Journal of Finance, 2003.
Securities Lending, Shorting, and Pricing, Darrell Duffie, Nicolae Garleanu, and Lasse Heje Pedersen (2002), Journal of Financial Economics 66, 307-339.
Short sellers search for stock owners and pay a lending fee. The lending fee increases the stock's price.
NYSE Award for best paper on equity trading, Western Finance Association, 2002.
Betting Against Correlation: Testing Theories of the Low-Risk Effect, Clifford S. Asness, Andrea Frazzini, Niels Joachim Gormsen, and Lasse Heje Pedersen (2016).
Two cool new factors separate competing theories: BAC is strong, consistent with leverage constraints; SMAX works too, consistent with lottery demand.
Featured in WSJ, Institutional Investor, Alpha Architect, Morningstar, Barron's (blog), Cliff's Perspective
Sharpening the Arithmetic of Active Management, Lasse Heje Pedersen (2016).
Is active management doomed in aggregate and, if so, is the financial system doomed? For the future of asset management, read here.
Efficiently Inefficient Markets for Assets and Asset Management, Nicolae Garleanu and Lasse Heje Pedersen (2015).
A new model of how asset management and asset markets actually work! Testable implications for asset pricing, mutual funds, hedge funds, PE, VC.
AIM Investment Center Best Paper Award, 2016. Featured in BloombergView, and mentioned again in BloombergView.
Risk Everywhere: Modeling and Managing Volatility, Tim Bollerslev, Benjamin Hood, John Huss, and Lasse Heje Pedersen (2016).
HExp, "highlander" risk model: there can be only one. Quantifying the value of a risk model.
Size Matters, if You Control Your Junk, Clifford S. Asness, Andrea Frazzini, Ronen Israel, Tobias J. Moskowitz, and Lasse Heje Pedersen (2015).
The size factor is weak because small firms are junky on average. Controlling for junk (or, its inverse, quality), produces a significant size premium.
Generalized Recovery, Christian Skov Jensen, David Lando, and Lasse Heje Pedersen (2015).
No assumptions on the probability distribution, thus generalizing the time-homogeneous stationary model of Ross. Intuitive closed-form solution.
We explain Buffett's amazing record based on BAB, QMJ, and leverage. Quiz: What is Buffett's SR?
Featured in The Economist, Reuters, Reuters Video (the actual secret sauce is at 1:30 minutes), Robert Shiller@CSI, CBS News, Pensions and Investments, Forbes, Boersen.
Securities that embed leverage alleviate leverage constraints and therefore have lower required returns. Evidence from options and leveraged ETFs.
Featured in Barrons.
We provide a definition of "quality stocks" and study the price and return of quality.
A Century of Evidence on Trend-Following Investing, Brian Hurst, Yao Hua Ooi, and Lasse Heje Pedersen (2013).
Time series momentum has worked each decade over the past century, across economic environments.
Corporate Bond Specialness, Amrut Nashikkar and Lasse Heje Pedersen (2007).
Shorting costs for corporate bonds.
Auctions with Endogenous Selling, Nicolae Garleanu and Lasse Heje Pedersen (2000).
The effect of market structure on volume, prices, and welfare with applications to real-world auctions.
Density-Based Inference in Affine Jump-Diffusions, Jun Liu, Jun Pan, and Lasse Heje Pedersen (2000).
A closed-form approximation to the density of affine jump diffusions with applications to finance.
POLICY PAPERS, OP-EDS, AND BLOGS
A Tax on Systemic Risk, Viral Acharya, Lasse H. Pedersen, Thomas Philippon, and Matt Richardson (2010), in NBER publication on Quantifying Systemic Risk, ed. by Joseph Haubrich and Andrew Lo.
Taxing Systemic Risk, Viral Acharya, Lasse H. Pedersen, Thomas Philippon, and Matt Richardson (2010), in Regulating Wall Street: The Dodd-Frank Act and the New Architecture of Global Finance, ed. by Acharya, Cooley, Richardson, and Walter, Wiley, 2010, chap. 5.
Regulating Systemic Risk, Viral Acharya, Lasse Heje Pedersen, Thomas Philippon, and Matt Richardson (2009), in Restoring Financial Stability: How to Repair a Failed System, ed. by Viral Acharya and Matt Richardson, Wiley, chap. 13, 283-304. Summary.
Hedge Funds in the Aftermath of the Financial Crisis Stephen Brown, Marcin Kacperczyk, Alexander Ljungqvist, Anthony Lynch, Lasse Heje Pedersen, and Matthew Richardson (2009), in Restoring Financial Stability: How to Repair a Failed System, ed. by Viral Acharya and Matt Richardson, Wiley, chap. 6, 157-178.Summary.
Saving free markets from market failure: institutions and liquidity are crucial, Lasse Heje Pedersen, Forbes, 9/29/2009.
Chinese version, sina.com.cn: 佩德森：避免 自由市场失灵
A proposal to prevent wholesale financial failure, Lasse H. Pedersen and Nouriel Roubini, Financial Times, 1/30/2009.