Dr Gavin Feng, Assistant Professor of the Department of Management Sciences, has won the 2018 AQR Insight Award for “Taming the Factor Zoo”, a paper written with Professor Stefano Giglio of Yale University and Professor Dacheng Xiu of the University of Chicago.
“This paper deals with one of the most vexing and topical problems in empirical finance — how to judge whether results are ‘real' or just the output of concerted data mining,” says AQR's co-founder Cliff Asness. “This is a topic anyone serious about factor investing has worried about.”
“Taming the Factor Zoo” proposes a new methodology based on machine learning and model selection techniques, which allows researchers to test and evaluate whether or not a new factor better explains the cross-section of asset prices when combined with existing factors. The authors then apply the model to a variety of recently proposed factors and determine that with a few exceptions — including profitability and investment — the new factors are redundant, failing to offer greater explanatory power.
The AQR Insight Award, sponsored by AQR Capital Management, recognises exceptional academic papers that offer original, intelligent approaches to issues in the investment world. Every year, top academics from around the world are invited to submit unpublished papers for review. This year, two papers, one being “Taming the Factor Zoo”, tied for first place, and the recipients shared a US$100,000 prize.
