Homepage of Pedro Barroso

I am an Associate Professor at Católica-Lisbon School of Business and Economics. Before I held positions as Senior Lecturer (tenured) at UNSW in Sydney and Lecturer at University of Exeter (UK). I did my PhD in Finance at Nova SBE (Lisbon, Portugal). My main research interests are in empirical asset pricing, anomalies, risk management, the foreign exchange market, and portfolio management. My work has been published in the JFE and in the JFQA. My most known work is on managing the risk of momentum strategies. I regularly serve as referee for all top journals of finance, for Management Science, and for multiple top journals in economics (JME, JIE, and others). Besides research, I worked as a consultant for a derivatives exchange designing risk management systems.    

Católica Lisbon School of Business and Economics
Palma de Cima, room 5303
1649-023 Lisboa
e-mail: pedro.barroso@ucp.pt

Google scholar profile here.
Curriculum: CV.

Momentum Has its Moments, with Pedro Santa-Clara.  Journal of Financial Economics, volume 116, Issue 1, April 2015, Pages 111-120.
 Click here for a folder with the data and programs used to produce the tables in the paper. 
Beyond the Carry Trade: Optimal Currency Portfolios, with Pedro Santa-Clara. Journal of Financial and Quantitative Analysis, volume 50, Issue 5, October 2015, pages 1037-1056. Click here for the internet appendix.  
Time-Varying Predictability of Consumption Growth, Macro-Uncertainty, and Risk Premiums with Paul Karehnke and Martijn Boons. Journal of Financial Economics, forthcoming.

Working papers:

Lest we forget: Using Out-Of-Sample Errors in Portfolio Optimization,  with Konark Saxena

Conditionally accepted at the Review of Financial Studies

AbstractPortfolio optimization usually struggles in realistic out of sample contexts. I de-construct this stylized fact comparing historical estimates of the inputs of portfolio optimization with their subsequent out of sample counterparts. I confirm that historical estimates are often very imprecise guides of subsequent values but also find this lack of persistence varies significantly across inputs and sets of assets. Strikingly, the resulting estimation errors are not entirely random. They have predictable patterns and can be partially reduced using their own previous history. A plain Markowitz optimization using corrected inputs performs quite well, out of sample, namely outperforming the 1/N rule. Also the corrected covariance matrix captures the risk of optimal portfolios much better than the historical one.
Conferences / seminars: Catolica Business School (Lisbon), Deakin University, Schroder's official institutions seminar (Sydney), Portuguese Finance Network 2016, FMA Europe 2016, EFMA 2016, FMA Asia 2016, UTS Sydney 2018, NOVA School of Business and Economics 2018, Singapore Management University 2019. 

Hedging with an Edge: Parametric Currency Overlaywith Jurij-Andrei Reicheneker and Marco Josef Menichetti 

Revise & Resubmit at Management Science

Abstract: We propose an optimal currency hedging strategy for global equity investors using currency value, carry, and momentum to proxy for expected currency returns. A benchmark risk constraint ensures the overlay closely mimics a full-hedge portfolio. We compare this with naive and optimal hedges in a demanding out-of-sample test, with transaction and rebalancing costs and margin requirements. Other hedging methods generally reduce risk but at a cost. Some tend to short currencies with high returns and all incur substantial costs with frictions, mostly margin requirements and equity rebalancing costs. The proposed strategy uses predictable returns to reduce this cost. It produces a statistically significant 18% gain in Sharpe ratio and an annualized Jensen-alpha of 0.93% versus a full-hedge benchmark. Notably, most of the implementation costs of the strategy would be incurred by the benchmark anyway. This reduces its marginal cost and highlights a specific. synergy of integrating hedging with speculation.
Conferences / Seminars10th IAFDS (winner of the "paper with largest potential to publish" award), 2017 Australasian Banking and Finance Conference, Auckland Finance Meeting 2017, FMA Europe 2018, EFMA 2018, UTS 2019, NUS 13th Risk Management Conference 2019, Portuguese Economic Journal 2019 annual meeting.

Revise & Resubmit at the Journal of Financial and Quantitative Analysis

Abstract: Several studies outline a destabilizing effect on asset prices from arbitrageur crowding. We consider this as an explanation for momentum crashes. We first develop theoretical predictions under a variety of belief mechanisms, and then test those predictions using 13F institutional holdings data. Our theory predicts unbounded momentum crashes when arbitrageurs maintain naïve linear beliefs, but no abnormal tail risk when beliefs are a fixed point of market clearing. Consistent with the equilibrium predicted under rational beliefs, our empirical tests on the first four moments of momentum returns find no evidence that momentum crashes relate to institutional crowding.
Conferences / SeminarsUniversity of Arizona, New South Wales, California Riverside, Technology at Sydney, Newcastle, Virginia Tech. Tennessee’s Smokey Mountain Finance Conference, The 14th Annual IDC/Herzliya Conference and Annual Quantitative Trading Symposium, and Manchester’s Hedge Fund Conference, Australasian Banking and Finance Conference 2017, 9th Professional Asset Management conference at Erasmus University RSM, Portuguese Finance Network 2018.

Abstract: We study the risk dynamics of the betting-against-beta anomaly. The strategy shows strong and predictable time variation in risk and no risk-return trade-off. A risk-managed strategy exploiting this achieves an annualized Sharpe ratio of 1.28 with a very high information ratio of 0.94 with respect to the original strategy. Similar strategies for the market, size, value, profitability, and investment factors achieve a much smaller information ratios of 0.15 on average. The large economic benefits of risk-scaling are similar to those of momentum and set these two anomalies apart from other equity factors. Decomposing risk into a market and a specific component we find the specific component drives our results. The performance of the strategy is also observed in international markets and is robust to transaction costs. 
Conferences / SeminarsEFMA 2017 (winner of the WRDS best paper award), Spanish Finance Association 2017, Australasian Banking and Finance Conference 2017, IESE, ESADE, Paris-Dauphine, QUT, Frontiers of Factor Investing Conference at University of Lancaster 2018.
AbstractWe examine the risk-return trade-off among equity factors. We obtain a positive in-sample risk-return trade-off for the profitability (RMW) and investment (CMA) factors of Fama and French (2015, 2016), while for the market and momentum factors there is a negative relation. The out-of-sample forecasting power (of factor volatility for factor returns) is economically significant for both RMW and CMA: By constructing a trading strategy that relies on such predictability, we obtain annual Sharpe ratios above one and utility gains above 5% per year. We also find weak evidence that the factor variances are negatively correlated with the aggregate equity premium.
Conferences / Seminars: UNSW, Midwest Finance Association 2018, FMA Europe 2018, Asian FA 2018 in Tokyo.


February 16, 2016 - My research on momentum featured in BusinessThink, UNSW's Business newsletter. 
July 1, 2016 - Opinion article on Brexit in Jornal de Negocios (the leading Economics / Business newspaper in Portugal): http://www.jornaldenegocios.pt/opiniao/detalhe/brexit_quanto_custa.html 
July 1, 2017 - My joint paper with Paulo Maio Managing the Risk of the 'Betting-Against-Beta' Anomaly: Does It Pay to Bet Against Beta? won the WRDS Best Conference paper award in EFMA 2017.
January 17, 2018 - My post on CFA's blog on managing the risk of momentum and other factors: https://blogs.cfainstitute.org/investor/2018/01/17/timing-the-market-momentum-and-beyond/ 
Subpages (1): Curriculum Vitae