AQR Capital Management announced the winners of its eighth annual AQR Insight Award, which honors exceptional academic papers that offer innovative, intelligent approaches to issues in the investment world.
This year, the winning paper was "Can the Market Multiply and Divide? Non-Proportional Thinking in Financial Markets" by Kelly Shue, a professor of finance of Yale University and faculty research fellow at the National Bureau of Economic Research, and Richard R. Townsend, an assistant professor of finance and accounting at the University of California San Diego.
In the paper, the authors hypothesize that investors tend to think about the changes in stock prices in dollar amounts rather than percentages, which can lead to more extreme investor responses to news for lower-priced stocks.
The authors concluded that investors underreact to news on high-priced stocks and overreact to news on low-priced stocks and that volatility rises sharply following stock splits and falls following reverse splits.
The authors of the winning paper shared a $50,000 prize.
Additionally, two papers tied for second place. One was "Disaster on the Horizon: The Price Effect of Sea Level Rise," by Asaf Bernstein, assistant professor of finance at the University of Colorado Boulder's Leeds School of Business; Matthew Gustafson, assistant professor of finance at Pennsylvania State University; and Ryan Lewis, also an assistant professor of finance at the Leeds School of Business. The other was "Shared Analyst Coverage: Unifying Momentum Spillover Effects," by Usman Ali, portfolio manager at MIG Capital, and David Hirshleifer, professor at the Paul Merage School of Business, UC Irvine. Each second-place paper was awarded $25,000.
"This year's AQR Insight Award winners are in impressive company. That so many of our winning papers have been published in the world's leading academic journals is a testament to the high standards of excellence the award exemplifies," said David Kabiller, co-founder of AQR Capital Management in a news release announcing the winners. "We congratulate the authors for this achievement and thank them for their contributions to financial research."
"Disaster on the Horizon" examines how climate-change concerns can impact the value of long-term cash flows using unique data on coastline property prices, and "Shared Analyst Coverage" studies how stocks connected by shared analyst coverage are linked in terms of fundamental and pricing dynamics.
After narrowing the finalists down to five papers, those authors were invited to AQR to present their research to senior members of the firm, who then deliberated and chose the winners.
The remaining papers in the top five that earned honorable mention were "Fund Tradeoffs" by Lubos Pastor, Robert F. Stambaugh and Lucian A. Taylor; and "Risk Price Variation: The Missing Half of the Cross-Section of Expected Returns" by Andrew J. Patton and Brian M. Weller.
AQR and its affiliates had about $203 billion in assets under management as of March 31.