Society of Quantitative Analysts and Chicago Booth Joint Event, featuring Kent Daniel, Columbia University on "Overpriced Winners"
5:30 p.m. Cocktails & Networking
6:00 p.m. Presentation
7:00 p.m. Cocktails & Networking
7:30 p.m. Adjourn
Discussion: A strong increase in a firm's market price over the past year is generally associated with higher future abnormal returns, consistent with the momentum anomaly. However, for a small set of firms for which arbitrage is limited, high past returns forecast strongly negative future abnormal returns. We propose a dynamic model in which increased unwarranted optimism by a set of speculators leads to dynamic mispricing effects. Consistent with this model, we show a set of firms with high past returns, low institutional ownership, and high recent changes in short interest earns persistently low returns going forward. A strategy that goes short the overpriced winners and long other winners generates a Sharpe-ratio of 1.08; its returns cannot be explained by commonly used risk-factors.
Kent Daniel is the William von Mueffling Professor of Business in the Finance and Economics Division at the Graduate School of Business at Columbia University. From 1996 to 2006, Kent was at the Kellogg School of Management at Northwestern University, where he was the John and Helen Kellogg Distinguished Professor of Finance (on leave from 2004-2006). Previously, he served on the faculties of the University of Chicago and the University of British Columbia.
Between 2004 and 2010, Kent was with the Quantitative Investment Strategies group at Goldman Sachs Asset Management. He became a managing director and head of the QIS equity research effort in 2005, and a co-chief investment officer in 2009.
Kent's academic research, both theoretical and empirical, has been primarily in the areas of behavioral finance and asset pricing. In addition to other awards, his academic papers received the 1997 and 1999 Smith-Breeden awards for the best paper in the Journal of Finance. His papers have been reprinted in several books. He received 2016 Dean's Award for teaching excellence at Columbia Business School, and the Sidney J. Levy Teaching Award for 1996-1997 and 2000-2001 at the Kellogg School.
Kent is a research associate at the National Bureau of Economic Research. He has served as an associate editor for the Journal of Finance, as a director of the American Finance Association, and as a director of the Western Finance Association. Kent received a B.S. with honors in Physics from the California Institute of Technology in 1981 and an M.B.A. from UCLA in 1987. He received his Ph.D. in Finance from UCLA in 1992.
The paper on Overpriced Winners (and momentum factors) is available here:
Andrew Peters, '11
President, Chicago Booth Club of New York