Weekly Top 5 Papers – January 1, 2018

1. The Games They Will Play: An Update on the Conference Committee Tax Bill by Reuven S. Avi-Yonah (University of Michigan Law School), Lily L. Batchelder (New York University School of Law), J. Clifton Fleming Jr. (Brigham Young University – J. Reuben Clark Law School), David Gamage (Indiana University Maurer School of Law), Ari D. Glogower (Ohio State University (OSU) – Michael E. Moritz College of Law), Daniel Jacob Hemel (University of Chicago – Law School), David Kamin (New York University School of Law), Mitchell Kane (New York University (NYU)), Rebecca M. Kysar (Brooklyn Law School; Fordham University School of Law), David S. Miller (Proskauer Rose LLP), Darien Shanske (University of California, Davis – School of Law), Daniel Shaviro (New York University School of Law) and Manoj Viswanathan (University of California Hastings College of the Law)

2. The Games They Will Play: Tax Games, Roadblocks, and Glitches Under the New Legislation by Reuven S. Avi-Yonah (University of Michigan Law School), Lily L. Batchelder (New York University School of Law), J. Clifton Fleming Jr. (Brigham Young University – J. Reuben Clark Law School), David Gamage (Indiana University Maurer School of Law), Ari D. Glogower (Ohio State University (OSU) – Michael E. Moritz College of Law), Daniel Jacob Hemel (University of Chicago – Law School), David Kamin (New York University School of Law), Mitchell Kane (New York University (NYU)), Rebecca M. Kysar (Brooklyn Law School; Fordham University School of Law), David S. Miller (Proskauer Rose LLP), Darien Shanske (University of California, Davis – School of Law), Daniel Shaviro (New York University School of Law) and Manoj Viswanathan (University of California Hastings College of the Law)

3. Blockchain Technology: Principles and Applications by Marc Pilkington (Université Bourgogne Franche Comté)

4. Deep Value by Clifford S. Asness (AQR Capital Management, LLC) , John M. Liew (AQR Capital Management, LLC), Lasse Heje Pedersen (AQR Capital Management, LLC) and Ashwin K. Thapar (AQR Capital Management, LLC)

We have experienced first-hand how ‘deep value’ trading can be deeply painful initially, even if the strategy works out in the end. When we launched our firm in the late 1990s, value strategies lost money as already expensive internet stocks became wildly expensive relative to cheaper value stocks. Over the years, we have seen many similar episodes across markets and time periods – most notably during the global financial crisis. Such instances where the price spread between cheap and expensive widens (sometimes to extremes) made us wonder whether such events may result in elevated expected forward looking returns to value.  These extreme events contain a lot of information about how markets really work and how dislocations can occur both during booms and busts.
In our new paper “Deep Value,” we complement the literature on contrarian investing by taking a global approach – we study value spreads and episodes of deep value across markets and geographies – and by looking at a lot of interesting data sets to study what really happens during these events. We find a strong deep value factor, particularly when we increase the number of comparisons past what’s normally studied in other work on “factor timing,” diversified globally and across asset classes, and study how and why it works. We look at data ranging from risk and fundamentals to measures of sentiment (i.e., demand pressures, news stories) to limits of arbitrage (i.e., volatility, t-costs) to arbitrageur activity (i.e., buybacks, M&A), which provides some really interesting new insights into competing risk-based and behavioral theories for the value premium in general,and what happens when things blow out. Without giving it all away, we find a healthy amount of support for both the rational theory and, perhaps especially, the behavioral theory of investor over-extrapolation, and satisfyingly, we can utterly reject the idea that market price moves are pure noise. – Lasse Pedersen

5. A Brief Introduction to the Basics of Game Theory by Matthew O. Jackson ( Stanford University – Department of Economics)

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