Lasse Heje Pedersen receives 2021 Graham and Dodd Top Award
The CFA Institute has announced Lasse Heje Pedersen, Professor at the Department of Finance and member of the Center for Financial Frictions, as winner of the 2021 Graham and Dodd Top Award of Excellence for his article “Enhanced Portfolio Optimization” (Financial Analysts Journal, 77:2, 124-151). The paper is co-authored with Abhilash Babu and Ari Levine.
The research addresses the problem of estimation noise in portfolio mean-variance optimization and identifies a shrinkage parameter that — when applied to the variance-covariance matrix — can alleviate certain estimation issues in the asset allocation process. The authors demonstrate that this enhanced portfolio optimization method results in improved Sharpe ratios (risk-adjusted returns) relative to equal-weighted portfolios and the market portfolio, as well as significant alphas relative to standard factors. The research illustrates that shrinkage is a simple but very powerful solution that can be easily applied by practitioners when conducting portfolio optimization.
The prestigious Graham and Dodd Awards of Excellence are granted annually for the best research articles published in the Financial Analysts Journal, the flagship publication of CFA Institute, and recognize the contribution of the articles to the practice of investment management. See here for more information about the Graham and Dodd Awards.
Find the press release by the CFA Institute here.
Read the article by AMWATCH here: Dane wins CFA institute's top prize for second time in three years