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Andrea Frazzini The Graduate On leave
2008-2009: AQR Capital
Management, LLC Two Greenwich
Plaza, 3rd Floor Greenwich,
Connecticut 06830 Tel: 203 742
3894
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Curriculum Vitae In the News Teaching MBA (restricted) Teaching PHD (restricted) |
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Research |
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We test the hypothesis that firms
appoint independent directors who are overly sympathetic to management, while
still technically independent according to regulatory definitions. We explore a subset of independent
directors for whom we have detailed, micro-level data on their views
regarding the firm prior to being appointed to the board: sell-side analysts
who end up serving on the board of companies they previously covered. We find striking evidence that boards
appoint overly optimistic analysts who exhibit little skill in evaluating the
firm itself, other firms within the firm’s industry, or even other firms in
general. The magnitude of the
optimistic bias is large: 82.0% of appointed recommendations are
strong-buy/buy recommendations, compared to 56.9% for all other analyst recommendations.
We find that appointed analysts’ optimism is stronger at precisely those
times when firms’ benefits are larger, and that appointed analysts appear to
be more closely tied to appointing firms than the title
"independent" director would suggest. Our results challenge the widely held view
that appointments of independent directors necessarily add objectivity to the
board of a firm.
We study
the impact of social networks on agents’ ability to gather superior
information about firms. Exploiting
novel data on the educational backgrounds of sell-side equity analysts and
senior officers of firms, we test the hypothesis that analysts’ school ties
to senior officers impart comparative information advantages in the
production of analyst research. We
find evidence that analysts outperform on their stock recommendations when
they have an educational link to the company. A simple portfolio strategy of
going long the buy recommendations with school ties and going short buy
recommendations without ties earns returns of 5.40% per year. We test whether Regulation FD, targeted at
impeding selective disclosure, constrained the use of direct access to senior
management. We find a large effect: pre-Reg FD the return premium from school
ties was 8.16% per year, while post-Reg FD the return premium is nearly zero
and insignificant. “The
Small World of Investing: Board Connections and Mutual Fund Returns” (with Lauren Cohen and Christopher
Malloy), April 2007 NBER Working paper
w13121. Forthcoming , Journal of
Political Economy Winner of Barclays Global Investors
Award, Best Paper in Asset Pricing, European Finance Association 2007 This
paper uses social networks to identify information transfer in security
markets. We focus on connections between mutual fund managers and corporate
board members via shared education networks. We find that portfolio managers
place larger bets on firms they are connected to through their network, and
perform significantly better on these holdings relative to their
non-connected holdings. A replicating portfolio of connected stocks
outperforms a replicating portfolio of non-connected stocks by up to 8.4% per
year. Returns are concentrated around corporate news announcements,
consistent with mutual fund managers gaining an informational advantage
through the education networks. Our results suggest that social networks may
be an important mechanism for information flow into asset prices. |
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The Earnings Announcement Premium and Trading Volume (with Owen Lamont), December 2006, NBER Working paper w13090. Revise and Resubmit , Journal of Finance On average, stock prices rise
around scheduled earnings announcement dates. We show that this earnings
announcement premium is large, robust, and strongly related to the fact that
volume surges around announcement dates. Stocks with high past concentration
of trading activity around earnings announcement dates earn the highest
announcement premium, suggesting some common underlying cause for both volume
and the premium. We show that high premium stocks experience the highest
levels of imputed small investor buying, suggesting that the premium is
driven by buying by small investors when the announcement catches their
attention. |
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Economic Links and
Predictable Returns (with Lauren Cohen), 2006, Journal
of Finance, forthcoming. Winner of First Prize, Winner of BSI Gamma Foundation Grant, Firm
Characteristics and Investment Management, 2006 This paper finds evidence
of return predictability across economically linked firms. We test the
hypothesis that in the presence of investors subject to attention
constraints, stock prices do not promptly incorporate news about economically
related firms, generating return predictability across assets. We use a
dataset of firms’ principal customers to identify a set of economically
related firms, and show that stock prices do not incorporate news involving
related firms, generating predictable subsequent price moves. A long/short
equity strategy based on this effect yields monthly alphas of over 150 basis
points. |
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Dumb Money: Mutual
Fund Flows and the Cross-Section of Stock Returns (with Owen
Lamont), 2006, Journal of Financial Economics, forthcoming We use mutual fund flows
as a measure for individual investor sentiment for different stocks, and find
that high sentiment predicts low future returns at long horizons. Fund flows
are dumb money: by reallocating across different mutual funds, retail
investors reduce their wealth in the long run. This dumb money effect is
strongly related to the value effect. High sentiment also is associated high
corporate issuance, interpretable as companies increasing the supply of
shares in response to investor demand. |
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The
Disposition Effect and Under-reaction to News, Journal of
Finance • Vol. LXI, No. 4 • August 2006 Winner of First Prize, Winner of First Prize, PanAgora Asset Management Crowell Memorial Prize Competition , 2004-2005 This paper tests whether the “disposition effect,” that is the tendency of investors to ride losses and realize gains, induces “underreaction” to news, leading to return predictability. I use data on mutual fund holdings to construct a new measure of reference purchasing prices for individual stocks, and I show that post-announcement price drift is most severe whenever capital gains and the news event have the same sign. The magnitude of the drift depends on the capital gains (losses) experienced by the stock holders on the event date. An event-driven strategy based on this effect yields monthly alphas of over 200 basis points.
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Stockscreen: Hitting The Links, SmartMoney, 1 December 2007. Too much information - Buttonwood, The Economist, 14 July 2007. 7 Money Mistakes To Avoid, SmartMoney, 1 July 2007. Point of View: Study Finds Money In Those Old School Ties, Dow
Jones News Service,
12 June 2007. Quantifying the
Role of Old-School Ties in Investing, The
New York Times, 9 June 2007. Blame
the Fund Manager, or the Face in the Mirror? The New York Times, 2/26/2006 |
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