Barron’s has a nice interview with Cliff Asness and David Kabriller of AQR Capital (click here to read.) Subscription required. One noteworthy exchange:
Why do you think momentum investing works?
Asness: No one has nailed down why. We have a lot of theories. When I say “we,” I don’t just mean AQR. I mean the academic community and the practitioner community. Underreaction is probably our universally favorite story. Good news comes out. There is a phenomenon in behavioral finance called anchoring and adjustment, where people go, “Oh, that’s great news,” and they move halfway but they don’t move all the way to incorporate the great news. So if you buy what’s gone up, there’s a little more to go. I won’t pretend I have told you all the different theories.
