Faculty & Research

Tobias J. Moskowitz

Fama Family Professor of Finance

Phone :
1-773-834-2757
Address :
5807 South Woodlawn Avenue
Chicago, IL 60637

Tobias J. Moskowitz, who joined the faculty in 1998, studies asset pricing, portfolio choice, risk sharing, market efficiency, real estate markets and finance, empirical corporate finance, and the business and analytics of sports. He has explored topics as diverse as momentum in stock returns, local bias in investment portfolio choice, the social effects of bank mergers, carry trades in currencies, bonds, and commodities, and sports betting markets. He also looked at the return to private business ownership, the trading and financing of commercial real estate, and the political economy of financial regulation.

Moskowitz was recognized by the American Finance Association with its 2007 Fischer Black Prize, which honors the top finance scholar under the age of 40. The award cited his "ingenious and careful use of newly available data to address fundamental questions in finance."

His article, "Home Bias at Home: Local Equity Preference in Domestic Portfolios," written in 1999 with Joshua Coval, won him the 2000 Smith-Breeden Award for the best paper published in the Journal of Finance. More recently, he won the 2004 and 2005 Barclays Global Investors Michael Brennan Award for the best paper published in the Review of Financial Studies for his papers entitled, "Informal Financial Networks: Theory and Evidence," written in 2003 with Mark Garmaise and "Confronting Information Asymmetries: Evidence from Real Estate Markets," written in 2004 with Mark Garmaise. He also won the 2006 Brattle Prize for a distinguished paper published in the Journal of Finance, "Testing Agency Theory with Entrepreneur Effort and Wealth," written in 2005 with Annette Vissing-Jorgensen and Marianne Bitler. And, he has won the Q Group Research Award twice: once for his paper “Market Frictions, Price Delay, and the Cross-Section of Returns”, written in 2005 with Kewei Hou, and a second time for his paper “The Effects of Stock Lending on Security Prices: An Experiment” in 2011 with Steven Kaplan and Berk Sensoy.

Always trying to bring his professional experiences into the classroom, Moskowitz observes that the gap between theory and practice is not as wide as people think. "It's always interesting to try to understand why," he says, "and I get my students to think about these issues."

Moskowitz serves as a research associate for the National Bureau of Economic Research and is a current editor of the Review of Financial Studies. His work has been cited in the Wall Street Journal, the New York Times, US News and World Report, Money magazine, and a 2005 speech by former Federal Reserve Chairman Alan Greenspan.

Moskowitz earned a bachelor's degree in industrial management and industrial engineering in 1993 from Purdue University. He went on to earn a master's degree in management from Purdue University the following year, before earning a PhD in finance from the University of California at Los Angeles in 1998.

 

2014 - 2015 Course Schedule

Number Name Quarter
35151 Quantitative Investment 2015 (Spring)

Other Interests

Wine, most sports (tennis, baseball, basketball, football, hockey), both playing and watching.

 

Research Activities

Empirical asset pricing; investments and portfolio choice; private equity and entrepreneurship; real estate; empirical corporate finance, sports economics.

With Josh Coval, "The Geography of Investment: Informed Trading and Asset Prices," Journal of Political Economy (2001).

With Annette Vissing-Jorgensen, "The Returns to Entrepreneurial Investment: A Private Equity Premium Puzzle?," American Economic Review (2002).

With Mark Garmaise, "Bank Mergers and Crime: The Real and Social Effects of Credit Market Competition," Journal of Finance (2006).

With Yao Hua Ooi and Lasse Pedersen, “Time Series Momentum,” Journal of Financial Economics (2011).

With Cliff Asness and Lasse Pedersen, “Value and Momentum Everywhere,” Journal of Finance (2012).

For a listing of research publications please visit ’s university library listing page.

REVISION: Fact, Fiction and Momentum Investing
Date Posted: Oct  03, 2014
It’s been over 20 years since the academic discovery of momentum investing (Jegadeesh and Titman (1993), Asness (1994)), yet much confusion and debate remains regarding its efficacy and its use as a practical investment tool. In some cases “confusion and debate” is us attempting to be polite, as it is near impossible for informed practitioners and academics to still believe some of the myths uttered about momentum — but that impossibility is often belied by real world statements. In this article, we aim to clear up much of the confusion by documenting what we know about momentum and disproving many of the often-repeated myths. We highlight ten myths about momentum and refute them, using results from widely circulated academic papers and analysis from the simplest and best publicly available data.

New: Momentum Crashes
Date Posted: Aug  26, 2014
Despite their strong positive average returns across numerous asset classes, momentum strategies can experience infrequent and persistent strings of negative returns. These momentum crashes are partly forecastable. They occur in "panic' states -- following market declines and when market volatility is high -- and are contemporaneous with market rebounds. We show that the low ex-ante expected returns in panic states are consistent with a conditionally high premium attached to the option-like payoffs of past losers. An implementable dynamic momentum strategy based on forecasts of momentum's mean and variance approximately doubles the alpha and Sharpe Ratio of a static momentum strategy, and is not explained by other factors. These results are robust across multiple time periods, international equity markets, and other asset classes.

REVISION: Carry
Date Posted: Jul  28, 2014
Any security’s expected return can be decomposed into its “carry” and its expected price appreciation, where carry is a model-free characteristic that can be observed in advance. While carry has been studied almost exclusively for currencies, we find that carry predicts returns both in the cross section and time series for a variety of different asset classes including global equities, global bonds, commodities, US Treasuries, credit, and options. This predictability rejects a generalized version of the uncovered interest rate parity and expectations hypothesis and in favor of models with varying risk premia. Our global carry factor across markets delivers strong average returns and, while it is exposed to recession, liquidity, and volatility risks, its performance presents a challenge to asset pricing models.

REVISION: How Tax Efficient are Equity Styles?
Date Posted: May  15, 2014
We examine the after-tax returns and tax efficiency of Size, Value, Growth, and Momentum equity styles. Examining portfolios commonly used in the literature and practice we find that Value and Momentum have the highest tax exposures, but continue to outperform the market on an after-tax basis. Momentum and Value face similar tax rates, despite Momentum having five times the turnover of Value, because Value is exposed to high dividend income, while Momentum’s exposure is primarily capital gains. We then construct tax optimized portfolios to assess how taxes can be improved within each style. We find that managing capital gains incurs less tracking error than avoiding dividend income. Hence, optimal tax trading improves capital gain-heavy styles such as Momentum without incurring significant style drift, while income-heavy styles such as Value are more difficult to improve. Tax optimization, therefore, further increases the after-tax outperformance of Momentum relative to Value and ...

REVISION: Trading Costs of Asset Pricing Anomalies
Date Posted: Mar  18, 2014
Using nearly a trillion dollars of live trading data from a large institutional money manager across 19 developed equity markets over the period 1998 to 2011, we measure the real-world transactions costs and price impact function facing an arbitrageur and apply them to size, value, momentum, and short-term reversal strategies. We find that actual trading costs are less than a tenth as large as, and therefore the potential scale of these strategies is more than an order of magnitude larger than, previous studies suggest. Furthermore, strategies designed to reduce transactions costs can increase net returns and capacity substantially, without incurring significant style drift. Results vary across styles, with value and momentum being more scalable than size, and short-term reversals being the most constrained by trading costs. We conclude that the main anomalies to standard asset pricing models are robust, implementable, and sizeable.

New: Momentum Crashes
Date Posted: Dec  24, 2013
Across numerous asset classes, momentum strategies have historically generated high Sharpe ratios and strong positive alphas relative to standard asset pricing models. However, the returns to momentum strategies are negatively skewed: they experience infrequent but strong and persistent strings of negative returns. These momentum crashes are partly forecastable. They occur in what we term “panic” states – following market declines and when market volatility is high, and are contemporaneous with market “rebounds.” We show that the low exante expected returns in panic states result from a conditionally high premium attached to the option-like payoffs of past losers. An implementable dynamic momentum strategy based on forecasts of each momentum strategy’s mean and variance generates an unconditional Sharpe ratio approximately double that of the static momentum strategy. Further, we show that momentum returns in panic states are correlated with, but not explained by, volatility risk. ...

New: Value and Momentum Everywhere
Date Posted: Nov  14, 2012
We study the returns to value and momentum strategies jointly across eight diverse markets and asset classes. Finding consistent value and momentum premia in every asset class, we further find strong common factor structure among their returns. Value and momentum are more positively correlated across asset classes than passive exposures to the asset classes themselves. However, value and momentum are negatively correlated both within and across asset classes. Our results indicate the presence of

REVISION: The Effects of Stock Lending on Security Prices: An Experiment
Date Posted: Nov  12, 2012
We examine the impact of short selling by conducting a randomized stock lending experiment. Working with a large, anonymous money manager, we create an exogenous and sizeable shock to the supply of lendable shares by taking high-loan fee stocks in the manager’s portfolio and randomly making available and withholding stocks from the lending market. The experiment ran in two independent phases: the first, from September 5 to 18, 2008, with over $580 million of securities lent; and the second, fr

New: Time Series Momentum
Date Posted: Jun  23, 2012
We document significant “time series momentum” in equity index, currency, commodity, and bond futures for each of the 58 liquid instruments we consider. We find persistence in returns for 1 to 12 months that partially reverses over longer horizons, consistent with sentiment theories of initial under-reaction and delayed over-reaction. A diversified portfolio of time series momentum strategies across all asset classes delivers substantial abnormal returns with little exposure to standard asse

New: The Role of Shorting, Firm Size, and Time on Market Anomalies
Date Posted: Jun  23, 2012
We examine the role of shorting, firm size, and time on the profitability of size, value, and momentum strategies. We find that long positions comprise almost all of size, 60% of value, and half of momentum profits. Shorting becomes less important for momentum and more important for value as firm size decreases. The value premium decreases with firm size and is weak among the largest stocks. Momentum profits, however, exhibit no reliable relation with size. These effects are robust over 86 years

New: Value and Momentum Everywhere
Date Posted: Mar  20, 2009
Value and momentum ubiquitously generate abnormal returns for individual stocks within several countries, across country equity indices, government bonds, currencies, and commodities. We study jointly the global returns to value and momentum and explore their common factor structure. We find that value (momentum) in one asset class is positively correlated with value (momentum) in other asset classes, and value and momentum are negatively correlated within and across asset classes. Liquidity ris

The Geography Of Investment: Informed Trading And Asset Prices
Date Posted: Jan  15, 2009
This paper uses geography to shed light on the role of asymmetric information in asset pricing. Demonstrating that investors possess significant informational advantages in evaluating nearby investments, we find that active mutual fund managers overweight proximate firms in their portfolios and earn substantial abnormal returns in local holdings. These findings are more pronounced among funds which are small, have few holdings, and operate out of remote locations. Aggregating across all funds

The Geography of Investment: Informed Trading and Asset Prices
Date Posted: Jan  15, 2009
Applying a geographic lens to mutual fund performance, this study finds that fund managers earn substantial abnormal returns in nearby investments. These returns are particularly strong among funds that are small and old, focus on few holdings, and operate out of remote areas. Furthermore, we find that while the average fund exhibits only a modest bias toward local stocks, certain funds strongly bias their holdings locally and exhibit even greater local performance. Finally, we demonstrate that

New: Long-Run Stockholder Consumption Risk and Asset Returns
Date Posted: Feb  01, 2008
We provide new evidence on the success of long-run risks in asset pricing by focusing on the risks borne by stockholders. Exploiting micro-level household consumption data, we show that long-run stockholder consumption risk better captures cross-sectional variation in average asset returns than aggregate or non-stockholder consumption risk, and provides more plausible economic magnitudes. We find that risk aversion estimates around 10 can match observed risk premia for the wealthiest stockholder

New: The Political Economy of Financial Regulation: Evidence from U.S. State Usury Laws in the 19th Centu...
Date Posted: Jun  05, 2007
We investigate the causes and consequences of financial regulation by studying the political economy of U.S. state usury laws in the 19th century. We find evidence that usury laws were binding and enforced and that lending activity was affected by rate ceilings. Exploiting the heterogeneity across states and time in regulation, enforcement, and market conditions, we find that regulation tightens when it is less costly and when it coexists with other economic and political restrictions that exclu

Why Do Entrepreneurs Hold Large Ownership Shares? Testing Agency Theory Using Entrepreneur Effort an...
Date Posted: Jan  20, 2006
We augment the standard principal-agent model to accommodate an entrepreneurial setting, where effort, ownership, and firm size are determined endogenously. We test the model's predictions (some novel) using new data on entrepreneurial effort and wealth. Accounting for unobserved firm heterogeneity using instrumental variables, we find entrepreneurial ownership shares increase with outside wealth, decrease with firm risk, and decrease with firm size; effort increases with ownership and size; and

Bank Mergers and Crime: The Real and Social Effects of Credit Market Competition
Date Posted: Feb  22, 2005
Using a unique sample of commercial loans and mergers between large banks, we provide microlevel (within-county) evidence linking credit conditions to economic development and find a spillover effect on crime. Neighborhoods that experienced more bank mergers are subjected to higher interest rates, diminished local construction, lower prices, an influx of poorer households, and higher property crime in subsequent years. The elasticity of property crime with respect to merger-induced banking conce

Do Liquidation Values Affect Financial Contracts? Evidence from Commercial Loan Contracts and Zoning...
Date Posted: Jan  20, 2005
We examine the impact of asset liquidation value on debt contracting using a unique set of commercial property non-recourse loan contracts. We employ commercial zoning regulation to capture the flexibility of a property's permitted uses as a measure of an asset's redeployability or value in its next best use. Within a census tract, more redeployable assets receive larger loans with longer maturities and durations, lower interest rates, and fewer creditors, controlling for the current value of th

More Banks, Less Crime? The Real and Social Effects of Bank Competition
Date Posted: Jan  13, 2005
We examine the link between the competitiveness of the local banking market, urban development, and crime. We provide micro-level evidence that neighborhoods that experienced more bank mergers are subjected to future reduced loan provision, diminished local construction, lower prices and rents, an influx of poorer households, and higher crime in subsequent years. A one standard deviation increase in bank concentration raises homicide and burglary rates by approximately 1 percent. We show that th

Informal Financial Networks: Theory and Evidence
Date Posted: Oct  27, 2004
We develop a model of informal financial networks and present corroborating evidence by studying the role of professional property brokers in the U.S. commercial real estate market. Our model demonstrates how service intermediaries, who do not supply finance themselves, can facilitate their clients' access to finance via repeated informal relationships with lenders. Empirically, we find that, controlling for endogenous broker selection, hiring a broker strikingly increases the probability of obt

Market Frictions, Price Delay, and the Cross-Section of Expected Returns
Date Posted: May  27, 2003
We parsimoniously characterize the severity of market frictions affecting a stock using the delay with which its share price responds to information. The most severely delayed firms command a large return premium that captures the size effect and half the value premium. Moreover, idiosyncratic risk is priced only among the most delayed firms. These results are not explained by other sources of return premia, microstructure, or pure liquidity effects, but appear most consistent with investor re

The Returns to Entrepreneurial Investment: A Private Equity Premium Puzzle?
Date Posted: Apr  11, 2002
We document the return to investing in U.S. nonpublicly traded equity. Entrepreneurial investment is extremely concentrated, yet despite its poor diversification, we find that the returns to private equity are no higher than the returns to public equity. Given the large public equity premium, it is puzzling why households willingly invest substantial amounts in a single privately held firm with a seemingly far worse risk-return tradeoff. We briefly discuss how large nonpecuniary benefits, a pref

Confronting Information Asymmetries: Evidence from Real Estate Markets
Date Posted: Apr  04, 2002
This paper studies the role of asymmetric information in commercial real estate markets in the U.S. We propose a novel and exogenous measure of information based on the quality of property tax assessments in different regions. Employing direct and indirect information variables, we find strong evidence that information considerations are significant in this market. We show that market participants resolve information asymmetries by purchasing nearby properties, trading properties with long incom

Confronting Information Asymmetries: Evidence from Real Estate Markets
Date Posted: Apr  04, 2002
This paper studies the role of asymmetric information in commercial real estate markets in the U.S. and Canada. We propose a novel and exogenous measure of information based on the quality of property tax assessments in different regions and time periods. Employing direct and indirect information variables, we find strong evidence that information considerations are significant in real estate. We show that market participants resolve information asymmetries by purchasing nearby properties and

What Do We Really Know About the Cross-Sectional Relation Between Past and Expected Returns?
Date Posted: Feb  19, 2002
Multihorizon temporal relationships between stock returns are complex due to confounding sources of return premia, microstructure effects, and changes in the relationship over various horizons. We find the relation to be further complicated by the sign and consistency of the past return that also varies, somewhat sensibly, with the season and the tax environment. Accounting for these additional effects using a parsimonious technical trading rule generates surprisingly large abnormal returns, des

What Do We Really Know About the Cross-Sectional Relation Between Past and Expected Returns?
Date Posted: Feb  01, 2002
Multihorizon temporal relationships between stock returns are complex due to confounding sources of return premia, microstructure effects, and changes in the relationship over various horizons. We find the relation to be further complicated by the sign and consistency of the past return that also varies, somewhat sensibly, with the season and the tax environment. Accounting for these additional effects using a parsimonious technical trading rule generates surprisingly large abnormal returns, de

The Private Equity Premium Puzzle
Date Posted: Sep  21, 2001
We document that investment in private equity is extremely concentrated. Yet despite the very poor diversification of entrepreneurs' portfolios, we find that the returns to private equity are surprisingly low. Given the large premium required by investors in public equity, it is puzzling why households willingly invest substantial amounts in a single privately held firm with a far worse risk-return tradeoff. We examine various explanations and conclude that private nonpecuniary benefits of contr

The Cross Section Of Expected Returns And Its Relation To Past Returns: New Evidence
Date Posted: Mar  06, 2001
This paper parsimoniously characterizes how past returns affect the cross-section of expected returns. Using Fama-MacBeth regressions, it shows that the momentum and reversals associated with past returns over various horizons are strongly affected by a turn-of-the-year seasonal that differs for winners and losers, depending on both the tax environment and the month of the year, and differs by exchange listing. The analysis also uncovers a consistent winners effect - high fractions of positive

Brokerage, Intermediation, and Agency: The Financing and Pricing of Commercial Properties
Date Posted: Jul  28, 2000
This paper examines a novel form of financial intermediation by studying the role of professional property brokers in the commercial real estate market. We find that broker intermediation is an important feature of the financing of commercial properties. Controlling for endogenous broker selection, we determine that hiring a broker significantly increases the probability of obtaining a bank loan by a striking 18 percent. We find, however, that brokers have only a modest effect on the sale price.

An Analysis of Risk and Pricing Anomalies
Date Posted: Jul  23, 2000
This paper examines the link between several well-known asset pricing anomalies and covariance risk. Estimating the time-series of the covariance matrix of asset returns via a multivariate GARCH model, I quantify the contribution made by each anomaly to the covariance matrix of asset returns, as well as its ability to forecast future covariances. I find that anomalous returns associated with firm size are closely linked to the covariance matrix, while those associated with book-to-market equit