Two academics and one Federal Reserve Board economist were named co-winners of the $100,000 annual AQR Insight Award, sponsored by AQR Capital Management, for their paper on covered interest rate parity.
Wenxin Du, an economist at the Federal Reserve Board; Alexander Tepper, with Columbia University; and Adrien Verdelhan, associate professor of finance at the MIT Sloan School of Management, were recognized for their research paper, “Deviations from Covered Interest Rate Parity.”
The winners, who will share the prize money, were selected from roughly 200 papers, all unpublished before Dec. 15, as required by AQR.
Covered interest rate parity “is the condition in which interest rates and the spot and forward currency values of any two countries are in equilibrium and thus cannot be arbitraged for profit,” said an AQR news release. “While this generally holds true historically, the (winning) paper finds that large deviations from CIP — and meaningful arbitrage opportunities — have persisted in global markets since the 2008 global financial crisis caused, at least partially, by banking regulatory reporting changes. The fact that this can occur in some of the largest and most liquid markets in the world is a discovery that the authors explore with important implications for investors and policymakers. For example, deviations from CIP can have meaningful impact on the costs of hedging foreign-currency denominated assets for investors seeking to diversify outside their home countries.”
The award, in its sixth year, recognizes “exceptional, unpublished papers that provide original, intelligent approaches to important issues in the investment world,” according to the release.
The other finalists, who receive honorable mentions but no prize money, are:
- Ralph S.J. Koijen, a finance professor at New York University Stern School of Business, and Motohiro Yogo, an economics professor at Princeton University for their paper “An Equilibrium Model of Institutional Demand and Asset Prices”;
- Zhongjin Lu, assistant professor in the department of finance at the University of Georgia Terry College of Business, and Scott Murray, assistant finance professor at Georgia State University J. Mack Robinson College of Business, for their paper “Bear Beta”;
- Kent Daniel, a professor in the finance and economics division at Columbia Business School, Alexander Klos, with Kiel University and Kiel Institute for the World Economy, and Simon Rottke, junior professor of finance at the University of Munster, for their paper “Overpriced Winners”; and
- Ian Martin, finance professor at the London School of Economics, and Christian Wagner, a professor in the department of finance at Copenhagen Business School, for their paper “What is the Expected Return on a Stock.”
Winners are selected by a committee made up of members of AQR.