AQR honors two academics with Insight Award
By Kevin Olsen | June 11, 2012
AQR Capital Management LLC's inaugural Insight Award honored two academics' research in predicting market returns more accurately over one-month and one-year time horizons.
Bryan T. Kelly, assistant professor of finance at the University of Chicago Booth School of Business, and Seth Pruitt, economist at the Federal Reserve Board of Governors, will split the $100,000 prize for their research, “Market Expectations in the Cross Section of Present Values,” which uses disaggregated valuation ratios to predict market returns more accurately.
“I was interested in the question of predictability because it seemed to be missing a lot of information that could be used to evaluate returns,” Mr. Kelly said in an interview.
Messrs. Kelly and Pruitt evaluated the price-dividend ratio of individual stocks and performed regression models, which left them with a collection of both good and bad predictors. They then combined the results into a “super predictor” that averages the individual stocks, but placed weightings on how good of a predictor the stocks are. “The fact is this has really nice statistical properties,” Mr. Kelly said.
The AQR Insight Award, which will be awarded annually, was started to recognize innovation and stimulate new ideas that are relevant to both institutional and individual investors, said David Kabiller, Greenwich, Conn.-based co-founder and head of client strategies at AQR.