Lasse Heje Pedersen: Research
Liquidity: Asset Pricing, Risk, and Crises, Yakov Amihud,
Haim Mendelson, and Lasse Heje Pedersen, Cambridge
University Press, 2013. NEW.
Published and ForthcominG PAPERS
Against Beta, Andrea Frazzini and Lasse Heje Pedersen (2010), Journal of Financial Economics,
A model of leverage and margin constraints help explain the relation between risk and return in each of the major asset classes, including why high beta equals low alpha.
Swiss Finance Institute Outstanding Paper Award, 2011.
Roger F. Murray Prize, 2011.
Featured in The Economist and Financial Times.
Solicited, Journal of Financial Economics.
Trading with Predictable Returns and Transaction Costs, Nicolae Garleanu and Lasse Heje Pedersen (2012), The Journal of Finance,
Markowitz portfolio is a moving target. Cool closed-form optimal strategy: aim in front of the target and trade partially towards the aim.
Demystifying Managed Futures, Brian Hurst, Yao Hua Ooi,
and Lasse Heje Pedersen
(2013), Journal of Investment Management, forthcoming.
Time series momentum strategies can explain the return of managed futures hedge funds.
and Momentum Everywhere,
Value and momentum effects appear across global markets in equities, commodities and bonds. There is an intriguing val-mom correlation structure. Liquidity and long-run consumption risks play a role.
Featured in the New York Times and Marketwatch.
Series Momentum, Tobias Moskowitz,
Striking persistence of returns linked to the trading activity of hedgers and speculators.
Featured in the Financial Times.
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.
Understanding the effects of 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.
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. RP+BAB: This across-asset-class evidence complements the within-asset-class evidence on Betting Against Beta.
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 credit-supply frictions: how central bank lending facilities can ease the credit frictions – with strong empirical evidence from the recent crisis.
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,
Featured in the Economic Times.
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.)
Featured in The Economist, New York Times and Forbes.
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.
Featured in The Economist and Barron’s.
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.
Trades and Currency Crashes, Markus
Brunnermeier, Stefan Nagel, and Lasse
Heje Pedersen (2008), NBER Macroeconomics Annual,
How the carry trade is subject to crash risk during funding liquidity crisis. Results help resolve the forward premium puzzle.
Featured in Forbes.
Moving Capital, Mark Mitchell, Lasse Heje Pedersen, and Todd Pulvino (2007), The American Economic Review,
P&P, 97, 215-220.
Empirical evidence: when arbitrageurs lose capital and new capital arrives slowly, prices become depressed and later rebound.
and Risk Management, Nicolae Garleanu, and Lasse Heje Pedersen (2007),
The American Economic Review, P&P, 97, 193-197.
Tighter risk management can lead to illiquidity and lower prices. A multiplier effects arises with liquidity-adjusted risk management.
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.
and Asset Prices, Yakov Amihud, Haim
Mendelson, and Lasse Heje Pedersen (2005), Foundations and Trends in Finance,
A survey of the literature.
Pricing with Liquidity Risk,
Viral Acharya and Lasse Heje Pedersen (2005), Journal of Financial Economics,
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.
Trading, Markus K. Brunnermeier and Lasse Heje Pedersen (2005), The Journal of Finance, 60,
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.
Markets, Darrell Duffie, Nicolae Garleanu, and Lasse Heje Pedersen (2005), Econometrica,
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.
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.
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 method.
Nominated for the Smith-Breeden Prize for best paper in The Journal of Finance, 2003.
Lending, Shorting, and Pricing,
Darrell Duffie, Nicolae Garleanu, and Lasse Heje Pedersen (2002), Journal of Financial Economics,
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.
Buffett's Alpha, Andrea Frazzini, David Kabiller, and Lasse Heje Pedersen (2012).
We explain Buffett's amazing record based on BAB, quality, and leverage. Quiz: What is Buffett's SR?
Featured in The Economist, Reuters, Reuters Video (the actual secret sauce is at 1:30 minutes), CBS News, Pensions and Investments, Forbes, Boersen.
Carry, Ralph Koijen, Tobias Moskowitz, Lasse H. Pedersen, and
Evert Vrugt (2012).
Carry is an important, directly observable, component of expected returns, predicting the cross-section and time series of global equity, bond, currency, and commodity returns.
Embedded Leverage, Andrea Frazzini and
Lasse Heje Pedersen (2011). Slides.
Securities that embed leverage alleviate investors' leverage constraints and therefore have lower required returns: Strong evidence from index options, equity options, and leveraged ETFs.
Featured in Barrons.
Systemic Risk, Viral Acharya, Lasse Heje Pedersen, Thomas Philippon,
and Matt Richardson (2010).
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.
Option Exercise: Never Say Never,
Mads Vestergaard Jensen and
Lasse Heje Pedersen (2012).
Theory and evidence overturning Merton's rule that one should never exercise a call early or convert a convertible bond.
Investing Without Industry Bets,
Cliff Asness, Andrea Frazzini,
and Lasse Heje Pedersen
Betting against beta works within each industry and across industries.
Quality Minus Junk,
Cliff Asness, Andrea Frazzini,
and Lasse Heje Pedersen
We provide a definition of "quality stocks" and study the price and return of quality.
Dynamic Portfolio Choice with Frictions, Nicolae Garleanu and Lasse Heje Pedersen (2013).
We derive the optimal portfolio explicitly in a large class of models with frictions and provide a micro foundation for transaction costs and their continuous-time limit.
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.
Leverage, John Geanakoplos and Lasse Heje Pedersen (2011).
Monitoring leverage and margin requirement is a model-free way to monitor systemic risk and developments of liquidity spirals.
Bond Specialness, Amrut Nashikkar and Lasse Heje Pedersen (2007).
Shorting costs are high for corporate bonds that are of worse credit, more expensive relative to the CDS, have equity on special, smaller issues, and more illiquid.
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.
Work in Progress
Global Market and Funding Liquidity Risk Across Asset Classes,
Too Big to Report, Andrea Frazzini and Lasse Heje Pedersen (2010).
Crowded Trades and Liquidity Risk, Tobias Moskowitz and Lasse Heje Pedersen (2008).
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.
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.
RESEARCH SUMMARIES AND TIPS:
Tips on How to Succeed in Academia for ph.d. students and junior faculty.