The University of Chicago Booth School of Business Assistant Professor Samuel Hartzmark and Associate Professor Kelly Shue received the 2016 AQR Insight Award for their research into the effect of earnings news on financial markets.
Their paper, “A Tough Act to Follow: Contrast Effects in Financial Markets,” tied for the first place prize. The researchers explore whether contrast effects—which occur when the quality of a previous observation inversely affects perception of the next observation—can distort prices in sophisticated and liquid equity markets.
The researchers show that a big positive earnings surprise yesterday makes today’s earnings news look less impressive in comparison. Likewise, a negative surprise yesterday make today’s earnings news look better, all else equal.
The AQR Insight Award, sponsored by AQR Capital Management, was established five years ago to recognize the most significant and innovative academic research that offers practical applications for investors.
The recipients share a $100,000 prize.
The Chicago Booth professors share the first place prize with another paper, “Size Discovery,” by Stanford University Professor Darrell Duffie and MIT Sloan School of Management Assistant Professor Haoxiang Zhu.
Booth faculty who have received the first place prize in past years include: Roman Family Professor of Finance Pietro Veronesi (2015), Professor of Economics Eric Budish and PhD student John Shim (2014), and Associate Professor of Finance Bryan Kelly (2012).